Just over one-fifth of the funds that posted first-decile returns in 2017 have held onto their positions at the very top of the performance tables in 2018 so far, research by FE Trustnet shows.
Last year and the opening five months of 2018 have presented investors with very different conditions as 2017 was marked by historically low levels of volatility while the new year has seen markets rocked by numerous bouts of instability.
With this in mind, FE Trustnet reviewed the performance of all the funds in the Investment Association’s equity, fixed income and multi-asset sectors to determine how many were in the top-decile of their respective sector in 2017 and were then able to stay there in the challenging environment of 2018’s first five months.
Overall, there were 259 top-decile funds in 2017 and 58 of these – or 22.4 per cent – remain in the first decile for the year-to-date. In the following article, we take a closer look at these funds.
Source: FE Analytics
The chart above shows all the funds from equity sectors that have made the grade (ranked in order for their 2018 returns) and it’s headed up by the £1.4bn Baillie Gifford American fund, which is managed by Gary Robinson, Helen Xiong, Tom Slater and Kirsty Gibson.
Like all funds managed by Baillie Gifford, the portfolio is built using a long-term, bottom-up process that favours companies with strong growth potential, cultures and competitive edges. Top holdings include names from the information technology and consumer discretionary sectors, such as Amazon, Grubhub and Netflix.
The FE Invest team, which includes Baillie Gifford American on its Approved List, said: “Overall, the fund would be most suited in a portfolio with a long-term investment horizon as well as one that can tolerate high volatility.”
Funds from the IA North America sector are well-represented in the list, as the above fund is joined near the top of the 2018 table by the likes of Morgan Stanley US Growth, T. Rowe Price US Blue Chip Equity and AXA Framlington American Growth.
Some IA Global funds have also fared well, with Aubrey Global Conviction coming in second place. Managed by Andrew Dalrymple, the fund also has a growth approach to investing, based on secular growth drivers that result in wealth creation, and focuses on companies with high earnings growth and a strong, stable competitive business; top holdings include Amazon, Tencent and Adobe Systems.
Baillie Gifford Global Discovery, GAM Multistock Luxury Brands Equity and Neptune Global Smaller Companies are other IA Global funds that have placed highly in this research.
Lindsell Train Japanese Equity comes in fourth place. Run by FE Alpha Manager Michael Lindsell, the fund uses a long-term approach that seeks out high-quality, cash-generative and strong business franchises, leading to a preference for stocks in the consumer franchise, media and pharmaceuticals sectors.
Several other IA Japan funds have managed to make top-decile returns in 2017 and over the challenging 2018-to-date, such as Legg Mason IF Japan Equity, First State Japan Focus and RWC Nissay Japan Focus.
When it comes to the UK equity sectors, six have made it onto the list. Jupiter UK Smaller Companies is the only one to make a return of more than 10 per cent in 2018, with other names including Baillie Gifford UK Equity Alpha, MI Chelverton UK Equity Growth and TB Saracen UK Income.
Source: FE Analytics
When it comes to the Investment Association’s bond sectors, not as many funds have been able to hang on to their top decile returns. In general, bonds have had a tougher start to the year than equities with the 10-year US Treasury yield reaching the psychologically important 3 per cent mark at one point.
Newton Long Gilt has made the highest return of 2018 from the four on the list, driven by the move to safety in the several sell-offs that have hit global markets in the opening five months of the year.
The other three funds are from the IA Sterling Strategic Bond sector, but as can be seen from the table all have made 2018 total return of less than 1 per cent with one managing to be in the top decile despite posting a small loss.
Moving over to the four Investment Association multi-asset sectors and we can see that more funds made top-decile returns in 2017 and have continued to do so this year, so far.
Neptune Global Alpha, which is headed up by Robin Geffen, is the highest returning fund on the list for both 2017 and 2018-to-date. The approach behind the fund is based on the macroeconomic views, company analysis and global sector-based investment process of Neptune Investment Management.
The IA Flexible Investment fund’s positioning tends to offer diversification from the MSCI World index; currently it has significant overweights to emerging markets and Japan on a geographical level and to information technology on a sector level.
Square Mile Investment Consulting & Research, which gave the fund an ‘A’ rating, said: “Ultimately this fund has an unencumbered investment approach that greatly benefits from having an experienced manager at the helm, insightful macroeconomic as well as global sector views, and an impressive array of supporting analysts and fund managers.”
Source: FE Analytics
Of the 13 multi-asset funds on the above list, six are from the IA Flexible Investment sector with five from IA Mixed Investment 40-85% Shares and two from IA Mixed Investment 20-60% Shares.
Neptune Balanced is the IA Mixed Investment 40-85% Shares fund with the highest ranking. It is also managed by Geffen with a similar process although it has greater exposure to fixed income than Neptune Global Alpha.
Royal London Sustainable Diversified Trust is the highest placed IA Mixed Investment 20-60% Shares fund. This multi-asset fund uses both negative and positive screening to find industry leaders when it comes to environmental, social and governance performance.