All advisers will know that, as the old saying goes, the stock market is not the economy – but there were times when it felt like the two were moving in opposite directions entirely.
In that context, it should come as little surprise to see that the market lows for many equity indices, including those in the UK, were reached on March 23 – the same day the UK went into full lockdown for the first time.
Buoyed by at first by central bank support and then by economic recovery hopes, investment markets found the subsequent 12 months to be surprisingly plain sailing. The rally proved rapid and, with the benefit of hindsight, prolonged.
Indeed, more than 60 equity funds in the Investment Association’s investment universe have more than doubled holders' money over the past year. Their specific investment focuses span a number of regions and specialisms, but there is a degree of commonality among some of the absolute best offerings.
On the other side of the ledger, the very worst performer will be depressingly familiar to almost all advisers. Yet outside of that portfolio, just one fund has lost 15 per cent or more over the past 12 months - emphasising just how fortunate investors have been over the period.
All the same, three more recent strugglers, detailed below, might be a sign of tougher times to come for parts of advisers' portfolios.
Below are the five best and five worst portfolios in the year to March 22. All data is from FE, based on funds open to all advisers, and returns accrued by a sterling investor.
Top funds
Premier Miton UK Smaller Companies 192.3%
Until recently, conventional UK equity indices had failed to keep up with peers over the past 12 months. But some smaller company strategies have flourished, taking advantage first of the rebound in risk assets seen in the second quarter of 2020, then of investors’ emerging belief in economic recovery. That said, the Premier Miton fund, run by Gervais Williams and Martin Turner, is more than 70 percentage points ahead of any other UK small-cap strategy over the period in question.
MFM Junior Gold 160.5%
It’s been a different kind of year for the tiny Junior Gold portfolio, which buys gold mining shares. Those companies rallied faster than almost every other asset last spring, meaning the fund made a 175 per cent gain from the March lows in just four months. Since then, however, the gold price has started to stutter, and so too have the fortunes of precious metal miners.
Legg Mason Royce US Small Cap Opportunity 147.4%
Of all the smaller companies sectors worldwide, it’s US small-caps that have taken off the most in recent months. Investors have rotated away from tech names, but have remained eager to take advantage of the new US administration’s fiscal stimulus plans. The rise of the US retail investor has also been of particular benefit to smaller companies.
Baillie Gifford American 139.7%
Tech-focused strategies still have plenty to show for the past year, however. One month ago, Baillie Gifford’s flagship open-ended fund was the outright lockdown leader with a 190 per cent gain in sterling terms. Recent weeks have seen many investors take profits on core holdings like Tesla and Amazon, but the fund remains one of the success stories of the past year.
Guinness Sustainable Energy 122.6%
It's a similar story for this ESG-friendly fund run by Guinness Asset Management. Sustainable energy stocks stood tall in 2020, as investors’ appetite for environmentally friendly companies grew like never before. The structural shift towards such companies remains intact, but allocators’ interest in economic reopening stories has seen them prioritise relatively unloved cyclical shares in 2021 – meaning a pullback for the likes of sustainable energy.
TM Stonehage Fleming Aim 120%
More familiar to advisers under its old name of Cavendish Aim, Paul Mumford’s portfolio is another to have capitalised on investors’ increasing interest in smaller companies. But Aim stocks had already shown a degree of resilience prior to recent months: extend the performance timeframe back to the start of last year, to include 2020’s first quarter drawdown, and the Aim 100 remains well ahead of both the FTSE 100 and FTSE Small Cap indices.
Bottom funds
LF Equity Income -62.9%
The worst performer of the past year needs little introduction. Neil Woodford’s former flagship portfolio has seen a series of negative revaluations as administrators dispose of its remaining assets - though its NAV has also been affected by distributions to investors, which means an accurate measurement of the fund's performance is hard to make. In any case, almost two years on from its suspension, investors still await their final payments from the fund.
Aviva Investors UK Property -15%
Another suspended portfolio, albeit one that has avoided the kind of losses sustained by LF Equity Income. Property funds across the industry shut their doors once again last spring as outflows mounted for the asset class. Most have since reopened, but there is no news yet on this portfolio’s fate. As it stands, a loss of 15 per cent, in a world in which the outlook for commercial property has changed considerably, is not too bad – though it remains to be seen whether there are more price discovery events still to come.
Standard Life Investments Global Bond -14.6%
iShares Overseas Government Bond Index -14.5%
Threadneedle Global Bond -13.3%
The final three funds in the list have been grouped together – as the presence of iShares’ index tracker indicates, this is a story of an asset class rather than individual struggles. In recent weeks, global bond funds have faced the twin headwinds of a strengthening sterling and, more significantly, a sharp rise in global government bond yields.
This rise is largely because investors are anticipating better times ahead for the global economy, driven by stimulus plans in the US. But that good news is a double-edged sword for government bond investors, and many allocators are once again considering whether their traditional portfolio ‘ballast’ is still fit for purpose.
