Some of the best performing funds of 2016 emerged among the worst performers of last year as market leadership again reversed.
Many fund managers underperformed benchmarks in 2016 after being caught out by the style shift away from growth stocks – a strategy that had dominated for several years – to value names.
As the below chart shows, however, growth stocks delivered stronger returns in 2017 than their value counterparts.
Performance of indices over 10yrs
Source: FE Analytics
Indeed, emerging markets and smaller companies strategies were among the top performers last year.
As such, FE Trustnet decided to revisit the top performers of 2016 to see how they fared last year amid a challenging market backdrop.
The top performing fund of 2016 was HC Charteris Gold & Precious Metals, which delivered a total return of 133.95 per cent.
However, in 2017 performance reversed and becoming one of the worst performers in what was another strong year for markets.
The £10.3m fund – which invests in companies involved in the mining, refining, production and marketing of gold and other precious metals – recorded a loss of 12.46 per cent during 2017.
The fund’s managers – Ian Williams, Mark Williams and Nick Taylor – noted that calendar year underperformance of its benchmark was related to underperforming sliver mining equities.
HC Charteris Gold & Precious Metals was one of several gold funds on the list of top performers last year alongside MFM Junior Gold, Smith & Williamson Global Gold & Resources, TC Peterhouse Gold and Precious Metals and Investec Global Gold.
The strategies benefited from strong performance of gold in 2016 as investors sought safe havens amid greater uncertainty over the Chinese economy, the impact of Brexit and the US presidential election.
However, despite a number of potentially challenging market events – such as elections in key European states and a stand-off between the US and North Korea over the latter’s nuclear weapon and missile programmes – the gold price remained subdued rising by low single-digits.
The best performing of the gold funds was the five FE Crown-rated TC Peterhouse Gold and Precious Metals, managed by Amanda van Dyke, which was up by 6.01 per cent.
Whereas Chinese equity strategies have dominated the top of the performance table in 2017, Russian and Brazilian equities were the best performers in 2016.
However, strategies focused on the two countries experienced different fortunes last year.
Performance of indices in 2017
Source: FE Analytics
It was a more subdued year for Russian equities after a strong 2016. The market had been buoyed by strengthening oil prices and the prospect of a Donald Trump presidency, following signals he could consider removing trade sanctions.
The $473m Pictet Russian Equities – managed by Hugo Bain, Klaus Bockstaller and Christopher Bannon – was the second best performing strategy of 2016, returning 107.31 per cent. Last year, however, the strategy struggled and recorded a loss of 5.18 per cent.
Despite the downturn in performance of Russian equities, the managers remain positive on the outlook for the market.
“We believe that even without relief from sanctions being lifted, the geopolitical risk premium is favourable for Russian equity prices and, as such, a high premium is already factored in,” the managers noted.
“We expect the market to begin factoring out the noise surrounding Russia and refocusing on the strong underlying economic and corporate fundamentals in the country.”
Similarly, the HSBC GIF Russia Equity fund – overseen by Douglas Helfer and delivering a return of 96.15 per cent in 2016 – also recorded a loss last year, falling by 4.45 per cent.
The top-performing Brazilian equity strategies of 2016 fared better than their Russian equity counterparts, however.
While some doubt had been thrown upon the Brazilian government’s commitment to reform following the emergence of a corruption scandal involving president Michel Temer, the economy has been buoyed by positive data and recovery from earlier recession, filtering through to markets.
The $64.1m BNY Mellon Brazil Equity fund, managed by Rogerio Poppe, generated a total return of 91.14 per cent in 2016 and continued to perform well in 2017 with a gain of 9.25 per cent.
Meanwhile, the $384.9m HSBC GIF Brazil Equity fund reported an 8.14 per cent return in 2017 following a 91.67 per cent showing during the previous year.
“The re-rating of the Brazil equity market has been supported by the end of the political paralysis and economic improvements after the worst recession in decades,” managers Natalia Kerkis and Lee Ray noted.
“Importantly, inflation continues to moderate which provides the central bank scope to further cut interest rates in support of economic recovery. We are seeing these positive developments feeding through to corporate earnings.”
They added: “A robust structural reform agenda, with effective policy-making and implementation, are critical in resolving economic imbalances.
“Reforms to address the fiscal deficit and state debt are underway, though there is uncertainty over the more ambitious pension reform programme. We would expect, however, that a reform agenda should remain on the table given its importance to the long-term health of the country.”
Lastly, the $6.4bn BlackRock GF World Mining fund had a very strong year. Returning 20.40 per cent in 2017, the only fund of the previous year’s top 10 performers to deliver double-digit returns.
Source: FE Analytics