Funds investing in gold mining, Russian and Brazil equities posted the best returns from the Investment Association universe in 2016, data from FE Analytics shows, as these previously unloved areas bounced back strongly last year thanks to surging commodity prices.
As has been mentioned plenty of times already, 2016 proved to be a challenging one for investors after events such as recovering commodity prices, the Brexit result and Donald Trump’s victory in the US presidential election took many by surprise.
On a sector level, it was the IA North American Smaller Companies peer group that came out on top last year after the average fund made a 39.99 per cent total return. It’s followed by IA Japanese Smaller Companies (32.59 per cent), IA Global Emerging Markets (30.84 per cent) and IA North America (29.31 per cent).
At the bottom of the table (aside from the two money market sectors) is IA Targeted Absolute Return and its average return of 1.06 per cent. IA Sterling Strategic Bond, IA UK Smaller Companies and IA Property are also at the bottom with respective gains of 7.33 per cent, 8.05 per cent and 8.19 per cent.
Performance of fund over 2016
Source: FE Analytics
But when we look at 2016 on an individual fund level, we see that many of the top returns were made by members of the IA Specialist sector. The fund shown in the above chart – WAY Charteris Gold & Precious Metals – made the Investment Association universe’s highest return last year after rising by 133.95 per cent.
The £15.8m fund, which has been managed by Ian Williams since launch in February 2010, has posted double-digit losses in the previous five full calendar years on the back of weakness in the gold price. However, 2016 was a decent year for investors in the yellow metal – especially those in the UK as the sharp fall in the price of sterling flattered the returns of the commodity, which is priced in dollars.
As the table below – which reveals the 25 highest returning funds of 2016 – this trend pushed gold equity funds to the top of the performance rankings. WAY Charteris Gold & Precious Metals is joined by the likes of MFM Junior Gold, Smith & Williamson Global Gold & Resources and Investec Global Gold at the top of the table.
Source: FE Analytics
Of course, gold and precious metals weren’t the only commodities to rebound strongly last year. FE Analytics shows that the S&P GSCI Commodity Spot index was up by close to 33 per cent in 2016, with gains being driven by significant rises in Brent crude oil, natural gas and industrial metals such as copper and aluminium.
This led to funds like BlackRock GF World Mining, JPM Natural Resources and Artemis Global Energy also making some of the year’s best returns.
The rally in commodities was also a contributing factor for the strong returns made by Russian and Brazilian equity funds. Both economies rely on commodity exports and have been hit hard by the weakness seen in prices over the recent past but enjoyed a 2016 recovery as commodities started to rise again.
Pictet Russian Equities, managed by Hugo Bain, Klaus Bockstaller and Christopher Bannon, was the Investment Association universe’s second best performer last year with a 107.31 per cent total return. The energy sector is its biggest weighting at 28.6 per cent of assets, while there’s another 16.1 per cent in materials businesses.
BNY Mellon Brazil Equity, which is the top performing Brazilian equities fund and the fifth best from the universe, has 23.9 per cent of its portfolio in the materials sector and 12.7 per cent in energy stocks. It made a 92.36 per cent total return, in sterling terms,
Performance of funds over 2016
Source: FE Analytics
As the table on the previous page showed, all the rebounding commodity price story and its positive impact on Russia and Brazil is behind all 25 of 2016’s highest returning funds. In fact, you have to go down to the 35th fund on the list – VT De Lisle America – to find one that doesn’t focus on natural resources or emerging markets.
Turning things on their head and the year’s worst returns were made by FP Argonaut Absolute Return, which was down 25.63 per cent in 2016. Two more absolute return funds – CF Odey Absolute Return and VT Odey Total Return come next after making respective losses of 17.85 per cent and 13.38 per cent.
In a coming article, FE Trustnet will look at the heavy losses made by some parts of the IA Targeted Absolute Return sector and ask what investors can learn from it.
However, it wasn’t just absolute return funds to make significant losses last year. As the above table below, funds investing in Chinese equities, UK property and biotech also posted some of the heaviest falls of 2016
Source: FE Analytics