Around 98 per cent of funds from the Investment Association universe have made a positive total return in 2019 so far, as strategies continue to benefit from the strong rally in markets at the start of the year.
Last year proved a difficult one for active managers as volatility returned to markets after a fairly benign 2017. Markets were shaken by the pace of the Federal Reserve’s rate-hiking programme as well as US president Donald Trump’s increasingly hostile trade stance with economic rival China.
Concerns that the US economy could tip into recession in 2019 saw investors become more risk-off, leading to falls in markets around the globe.
Indeed, the blue-chip S&P 500 index recorded its first annual loss – in US dollar terms – since the global financial crisis, ending the year 4.94 per cent down.
Other markets struggled in 2018 as the ongoing Brexit saga saw the FTSE All Share index fall by 9.47 per cent, while high growth emerging markets were impacted by talks of a US-China trade war with the MSCI Emerging Markets index down by 9.27 per cent, both in sterling terms.
However, the decision by the Federal Reserve to pause its path to normalisation early on in the year, as well as the prospect of a new US-China trade deal, restored confidence to markets.
While renewed optimism has been tempered somewhat by the resumption of US-China trade tensions more recently, market returns across 2019 have been broadly positive.
Performance of indices in 2019 in sterling
Source: FE Analytics
So far this year, the S&P 500 is up by 17.19 per cent in US dollar terms while the FTSE All Share has made a flattish total return of 0.52 per cent in sterling.
The more positive market backdrop has been good for fund managers, particularly after a difficult 2018 where just 11.2 per cent of the universe was in the black.
So far this year, however, 97.9 per cent of funds in the Investment Association have made a positive total return.
Given the much-changed investment backdrop, FE Trustnet decided to revisit the best and worst performers of 2018 to find out how they had performed in 2019 so far.
The top 20 best performers of last year were concentrated in a number of different specialist areas, as the table below shows. Indeed, strategies focusing on healthcare, technology and US growth areas were among the best performers.
Last year’s top performer was the $1.5bn, four FE Crown-rated Polar Capital Healthcare Opportunities fund, overseen by Daniel Mahony and Gareth Powell, with a return of 15.51 per cent. Its returns have been more moderate in 2019, nevertheless it is up by 8.11 per cent in the year to 19 June.
Almost all of the top-20 funds from last year have made a positive total return, apart from TM Sanditon European Select, the £127.9m European equity strategy managed by Chris Rice, which has recorded a 3.95 per cent loss.
The long/short European equity strategy target returns that are 2 per cent per annum in excess of the EU Harmonised Inflation benchmark
Source: FE Analytics
Of last year’s top performers, Morgan Stanley US Growth has had the best 2019 so far.
The $2.8bn, five FE Crown-rated fund has made a total return of 33.58 per cent this year and is also the best performing fund of the whole Investment Association universe.
US growth-oriented funds have been among the top-performing strategies so far this year, reflecting the strong rise in US markets and the continued dominance of the growth style.
The Morgan Stanley US Growth fund seeks out high quality established and emerging companies with sustainable competitive advantages, strong free cash flow yields and favourable returns on invested capital. However, the firm notes that it has a focus on long-term growth rather than short-term events.
While last year’s top performers have largely continued to make solid returns in 2019, for some of the funds that were at the bottom of the table last year things have got slightly tougher.
Last year, the worst performing fund from the Investment Association universe – TC South River Gold and Precious Metals – was down by 28.86 per cent. While performance has improved, it remains in negative territory having made a loss of 2.36 per cent in the year to 19 June.
Source: FE Analytics
Other loss-making funds of 2018 that have continued to make losses so far this year include the L&G UK Alpha Trust and Invesco Korean Equity.
The £105.6m L&G UK Alpha Trust is overseen by Rod Oscroft, who took over from previous manager Richard Penny at the start of 2018 following his departure to CRUX Asset Management. Having made a loss of 25.05 per cent, the fund is down by 3.06 per cent so far this year.
The other loss-making fund from last year’s worst performers is the $69.7m Invesco Korean Equity fund – managed by Simon Jeong – which has lost 5.29 per cent following a fall of 23.41 per cent in 2018.
However, most of last year’s top 20 worst performers were in positive territory, with GAM Star China Equity and Guinness Global Money Managers standing out as the best of the bunch.
Despite the challenges of renewed hostilities between the US and China, the $356.9m GAM Star China Equity fund has risen by 19.95 per cent following a loss of 23.90 per cent last year.
The Chinese equity fund had been managed since launch in 2007 by manager Michael Lai, who is to leave the firm and hand over to successor Rob Mumford. The fund takes a style-agnostic approach that combines bottom-up stock selection with top-down analysis.
Guinness Global Money Managers meanwhile has made a total return of 19.24 per cent after a loss of 22.67 per cent last year. The $6.5m strategy, which is overseen by Guinness Asset Management chief investment officer Tim Guinness and Will Riley, invests in asset managers, which it believes have the ability to grow very rapidly in rising markets.