While volatile markets can lead to compelling investment opportunities, it can be a scary ride. Yet there are funds that have been able to deliver decent returns and a smooth ascent, despite operating in some of the roughest sectors.
Below, Trustnet has highlighted the sectors that may have given investors nightmares over the past three years, ranking bottom-quartile in the Investment Association universe for suppressing annualised volatility and maximum drawdown – the most an investor would have lost if buying and selling at the worst possible time.
We then screened the funds within each sector that have made strong returns over the past three years to last month-end, while doing so with lower volatility than their peers.
Source: FE Analytics
As to be expected, the most volatile sectors with the worst average drawdown are concentrated in emerging markets (IA China/Greater China and IA Global Emerging Markets) or lower down the market cap scale (IA European Smaller Companies, IA Japanese Smaller Companies and IA North American Smaller Companies).
There are two funds in the IA China/Greater China sector in the top quartile for suppressing volatility that have delivered top-quartile returns to investors over three years: First State Greater China Growth and Schroder ISF Greater China.
The £487.5m, four Crown-rated First State Greater China Growth fund is overseen by Alpha Manager Martin Lau and Helen Chen. It has made a total return of 42.32 per cent over the past three years, against a 32.49 per cent total return for its average peer and a 31.17 per cent gain for the MSCI Golden Dragon benchmark. Its annualised volatility score is 13.63 per cent.
The other fund is Schroder ISF Greater China: a $1.3bn four Crown-rated strategy overseen by Louisa Lo since September 2002. The fund has returned 40.08 per cent over the past three years with annualised volatility of 1.44 per cent. Stockpicker Lo focuses on growth and valuation and has recently moved out of high-growth names into more defensive stocks due to concerns over high valuations.
There are two funds in the IA European Smaller Companies sector that delivered top quartile returns with low volatility: Barings Europe Select Trust and MFS Meridian European Smaller Companies.
The £1.5bn Barings Europe Select Trust, overseen by Nick Williams, Colin Riddles and Rosemary Simmonds, has returned 32.61 per cent over the past three years with annualised volatility of 11.48 per cent. The managers aim to identify companies with strong finances and management, a clear strategy and a catalyst for growth, resulting in a diversified portfolio.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
MFS Meridian European Smaller Companies has a slightly lower return of 28.34 per cent, but its volatility score of 10 per cent is also lower – and the lowest in our study. The €815.8m, four Crown-rated fund is managed by Peter Fruzzetti, Sandeep Mehta and Gabrielle Gourgey. It focuses on suppressing downside risk by seeking out high quality, sustainable businesses. Unlike the Barings strategy, the MFS fund invests in UK companies.
The IA Global Emerging Markets sector has four funds that have made top-quartile three-year returns with low volatility: Artemis Global Emerging Markets Income, JPM Emerging Markets Income, Lazard Mena and T. Rowe Price Emerging Markets Value Equity.
Artemis Global Emerging Markets is up by 32.67 per cent over the past three years, with an annualised volatility figure of 11.68 per cent. The £291.5m, five Crown-rated fund is headed up by Peter Saacke and Raheel Altaf, who use the firm’s proprietary quantitative tool SmartGARP to rate stocks before adding qualitative judgements to build the portfolio.
The four Crown-rated JPM Emerging Markets Income fund also features on our list, with an annualised volatility figure of 12 per cent and a three-year total return of 29.64 per cent. The equity income strategy is managed by Omar Negyal, Alpha Manager Amit Mehta, and Jeffery Roskell. It focuses on total return, with a bias to high-quality companies trading at a discount.
Performance of fund vs sector over 3yrs
Source: FE Analytics
Lazard Mena – the only fund from the sector to make a positive return in 2018 – is managed by Fadi Al Said invests in companies listed or operating in the Middle East & North Africa region. The $27.1m, five Crown-rated fund has made a total return of 58.89 per cent – the highest in our study – with annualised volatility of 10.17 per cent.
Last up in the sector is the five Crown-rated T. Rowe Price Emerging Markets Value Equity fund, managed by Ernest Yeung. It made 32.58 per cent over the past three years, with annualised volatility of 12.41 per cent.
Just two funds in the IA North American Smaller Companies sector managed to make top returns while displaying lower volatility: NB US Small Cap and T. Rowe Price US Smaller Companies Equity.
The $366m, four Crown-rated NB US Small Cap fund has made a total return of 47.13 per cent over the past three years, with annualised volatility of 13.53 per cent under managers Judith Vale and Robert d’Alelio. They invest in undervalued stocks that are financially secure and have good growth prospects.
The $1.4bn, five Crown-rated T. Rowe Price US Smaller Companies Equity fund, meanwhile, is managed by Curt Organt. It made a total return of 58.71 per cent – the second highest in our study – with annualised volatility of 13.37 per cent.