Technology and specialist strategies, as well as North American funds focusing across the market cap spectrum, have been among the best performers since the start of the 2018 financial year, so far.
With just seven days until the ISA deadline shuts for this financial year, investors still have some time to make full use of their £20,000 tax-free allowance.
While 2018 proved a difficult year for outperformance with several significant sell-offs during the calendar year, as trade tensions between China and the US rose, Brexit uncertainty continued and the Federal Reserve pursued policy normalisation.
However, the 12 months since the last ISA year have been more positive as this period avoids the market sell-off during the first quarter of 2018 and includes the rally seen in markets during 2019 so far.
As the below chart shows, the S&P 500 has returned 16.60 per cent since 6 April 2018 – in sterling terms – while the FTSE All Share was up by 3.38 per cent.
Performance of indices since 6 April 2018
Source: FE Analytics
In comparison, during the full calendar year the US blue-chip index made a 0.96 per cent return, while the UK benchmark recorded a loss of 9.47 per cent.
As such, FE Trustnet decided to find out which funds and sectors have performed best during the current financial year (to 28 March 2019).
While performance of the high-growth FAANG (Facebook, Amazon.com, Apple, Netflix, and Google-parent Alphabet) stocks that have driven markets in recent years tailed off in 2018, technology sector remains one of the best performers during the current ISA season.
IA Technology & Telecommunications has been the best performing peer group since the start of the ISA year, with the average fund making a total return of 16.98 per cent.
The strong performance of the S&P 500 has also benefited the Investment Association’s two North American sector, with both peer group reporting strong gains.
The average IA North America fund made a return of 12.07 per cent in the period under review, while the IA North American Smaller Companies peer group was up by 10.21 per cent.
Elsewhere there were strong returns for both property sectors with the average IA Property Other fund up by 9.35 per cent and IA UK Direct Property up by 3.43 per cent.
The two global equity sectors also featured amongst the top-10 best performing peer groups with IA Global Equity Income gaining 5.88 per cent and the average IA Global fund up by 5.81 per cent.
Source: FE Analytics
UK government paper has also performed strongly during the period as gilt prices rose amid a growing risk of a ‘no deal’ Brexit.
AXA Investment Managers’ Chris Iggo – chief investment officer and head of Europe and Asia fixed income – said gilts and index-linked UK government debt would be his ‘asset of choice’ in the event of ‘no deal’.
As such the IA UK Index Linked Gilt sector has risen by 8.67 per cent while the average IA UK Gilts fund has made 4.37 per cent.
Despite the strong performance of technology and North American strategies, it is a specialist fund that leads performance with one week of the current tax year remaining: the £1.4bn Polar Capital Healthcare Opportunities fund leads the pack.
The four FE Crown-rated fund managed by Daniel Mahony and Gareth Powell has made a total return of 30.84 per cent since 6 April 2018.
Using a fundamentally-driven stock selection process, the fund invests in a concentrated portfolio of global companies operating across a range of areas.
The fund’s managers take the view that there are six major opportunities in markets: that operating leverage impact of new products is underestimated, that a longer horizon is needed to exploit the time-value proposition of healthcare, that specialist market are regularly overlooked, that M&A activity is often under-rated by the market, that new technologies can generate significant returns, and that there are geographic & sector anomalies in valuations.
As the best performing peer group, it is little surprise to find that there are a number of technology funds found among the top 10 over the period, including second-best performer MFM Techinvest Technology, which is up by 29.87 per cent.
The £44.4m MFM Techinvest Technology fund and has been managed by Conor McCarthy and Darren Freemantle since launch in May 2003.
Unusually for a technology-focused fund it aims to invest up to 75 per cent of the portfolio in businesses listed on the London Stock Exchange with the remainder invested elsewhere but primarily in the North American market.
“Despite the negative news flow in recent months, particularly in relation to the mega-cap companies, the underlying case for the technology sector remains positive,” the managers noted in the most recent factsheet.
“Added to the scope for resolution of the headline political risks during H1 2019, on balance the risks still seem biased to the upside even if uncertainty remains relatively high.”
Source: FE Analytics
Other top-performing technology strategies over the period include Polar Capital Global Technology, Smith & Williamson Artificial Intelligence, and AXA Framlington Global Technology, with returns above 20 per cent over the period.
With the US as one of the strongest performing markets since 6 April, its little surprise to see the remainder of the top 10 made up of North American equity strategies.
Two of the best performers as the above table shows come from boutique asset manager Brown Advisory: Brown Advisory US Sustainable Growth and Brown Advisory US Equity Growth.
The former is up by 27.69 per cent and is managed by David Powell and Karina Funk. The $172.7m Brown Advisory US Sustainable Growth fund aims to invest at least 80 per cent of the portfolio in US companies that the manager considers have sound fundamentals and business models which are sustainable over the long term, targeted at the large-end of the market cap spectrum.
The $687.9m Brown Advisory US Equity Growth fund, meanwhile, invests in the mid-to-large cap US equity space and is overseen by Kenneth Stuzin making a return of 26.5 per cent over the period.
Other top-performing North American funds include AB Concentrated US Equity Portfolio, Comgest Growth America and AB American Growth Portfolio.