How did the 2019 fund award winners perform?

by Tom Bailey from Money Observer |

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Most of the Money Observer 2019 selection performed relatively well in a year blighted by the Covid-19 pandemic.

Every year Money Observer crunches the numbers for its investment fund awards in a bid to identify funds we think will provide superior performance in their asset class. This year’s winners can be found here.

One key criterion in allocating the awards is the reliability of performance from one year to the next, so how did last year’s winners perform over the 12-months from 31 March 2019?

Broadly, the funds performed well, bearing in mind that the period ended with the market’s coronavirus-related implosion. Roughly a third achieved positive returns, despite the market crash. However, not all were so rewarding: the rest produced negative returns.

Generally, the better-performing funds shared some key characteristics: they were either invested in large-cap, growth-focused and high-quality equities (which translates into companies with strong financial fundamentals) or they were bond-focused.

Growth stocks have thrived over the past year because, although there have been significant short-term setbacks sparked by events such as the global pandemic, the world economy has on the whole continued to be characterised by low inflation, low interest rates and lack-lustre economic growth – all of which being conditions deemed to benefit growth stocks.

Ethical funds excel

An environmental, social, and governance (ESG) mandate was another important characteristic of the top performers.

Indeed, Royal London Sustainable World Trust was the best performer among 2019’s winners, having returned 7.9% over the year. Moreover, it scooped a double gong again in Money Observer’s 2020 fund awards.

The ESG-focused multi-asset fund produced its impressive return thanks in part to its high-quality, big-name equity holdings, including Rentokil Initial, Roche, Microsoft and AstraZeneca. The Investment Association mixed-investment 40-85% sector (in which the fund sits) lost 8% in the same period.

Royal London Sustainable Diversified, another ESG-driven fund from the same management group, also produced a relatively strong return, of 4.8%. Like several other top performers, the fund includes large-cap growth companies, with its largest holding being Microsoft. Its mixed-asset IA sector lost 7.2% over the same period.

Second in the winners table was Miton European Opportunities. European equity markets have lagged other regional stock markets in recent years, due to the consistently poor performance of the European economy. However, since its launch in 2015, the fund has stood out from other European funds, and that was the case again. The fund produced a one-year return of 6.7% to the end of March, while the IA Europe ex UK sector lost 9.4% over the same period.

The fund’s managers are stock-pickers looking for high-quality European companies where the potential to add value is not reflected in the firm’s share price. Importantly, their focus is on players in the global market, rather than those directly affected by the continent’s economic tribulations.

Also among the growth-focused outperformers was the T Rowe Price Global Focused Growth fund, which produced a total return of 2.3% in the year. That stood head and shoulders above the IA global sector as a whole, which produced a loss of 6%. The portfolio is primarily focused, as the fund’s name suggests, on growth stocks, and it has a large weighting to tech stocks.

Tech stocks have benefited from the same tailwinds as other growth stocks and also from being (as at 2 June 2020) relatively immune to the economic impact of the Covid-19 pandemic – in some cases they have thrived in the disruption. T Rowe Price Global Focused Growth’s largest holding is Amazon, which had a positive year-to-date return at the end of March. The virus has been good for Amazon for several reasons, not least because of the damage the lockdown has done to its traditional high street retailer rivals. The fund’s portfolio is reasonably high-conviction, usually consisting of between 60 and 80 stocks.

Pandemic casualties

However, due in large part to the lockdown, some asset classes and investment styles produced poor performance. The Schroder Income fund was the biggest disappointment over the course of the year to the end of March, losing just over 29%. As investors will know, the pandemic has not been kind to investors seeking dividends. However, the fund fared notably worse than other income-seeking funds: the IA’s UK equity income sector saw an average return of -20.6% over the period.

Being value-focused, Schroder Income was heavily exposed to energy and financials – two areas that have suffered painfully in the crisis. Moreover, several of its biggest holdings endured particularly damaging declines. Its largest holding, mining company Anglo American, for example, was down roughly 40% at one point during the coronavirus sell-off, while BP, its second largest, was down by almost 60%.

That said, it should be noted that many of the worst-performing funds in the 2019 awards lineup have still performed relatively well compared with their peers. While the asset class or sector they have invested in has struggled, a robust portfolio has in many cases helped protect these funds to some extent. For example, one of the poorer performances came from Fidelity Global Property, which lost 11.1% of its value. Like other property funds, it was hit hard by the coronavirus sell-off. However, it performed comparatively well, with its loss slightly lower than the sector average of 13.2%.

The CFP SDL UK Buffettology fund also lost ground over the period. The fund, run by Keith Ashworth-Lord, attempts to replicate Warren Buffett’s approach to stockpicking: identifying companies with strong balance sheets and the ability to grow over the long term. Its performance reflected the generally poor performance of UK equity funds over the year, but nonetheless soundly beat the IA UK all companies sector average, which fell by almost twice as much over the same period.

Similarly, Baillie Gifford Emerging Markets Growth produced a return of -12.9%. However, compared with the performance of emerging markets as a whole, that is not to be scoffed at. Over the period the IA’s emerging market sector lost 15.4%. The performance of the Baillie Gifford fund was salvaged in part by its exposure to Chinese equities, which have broadly performed well. The trust’s largest holding is Chinese tech company Tencent. Its second-largest holding, Alibaba, is also a Chinese tech firm.

Elsewhere, JPMorgan US Small Cap Growth was down 6.3%, but that is far less than the IA North American smaller companies sector average, which lost 13.9%. One reason the fund did well compared with its sector was its large holding in Teledoc Health. The virtual healthcare company was already enjoying strong share price growth before the pandemic, but when the coronavirus struck its price surged. In the first three months of 2020 the company’s share price almost doubled.

Fixed-income fortunes

There were some stark differences in the performance of the various bond funds on the winners list. For instance, the M&G Global Government Bond fund returned a respectable 5.5% over the year. In contrast, the Royal London Sterling Extra Yield Bond fund lost 11% of its value.

This can largely be explained by variations in the performance of different sections of the bond market in response to the impact of Covid-19. The economic fallout from the pandemic saw governments cut interest rates and radically expand monetary policy, which resulted in lower yields and higher bond prices. However, this was only a boost for government bonds and the safer ends of the corporate bond market, as investors sought safety. In contrast, investors were keen to flee riskier and higher-yield bonds for fear of a wave of defaults.

The stronger performance of the Rathbone Ethical Bond fund can also be explained by this phenomenon. The fund is limited primarily to investment-grade bonds. However, it also has an ESG remit, and as research has repeatedly shown, companies that score high on ESG metrics are generally higher-quality firms with stronger balance sheets – the sort of companies whose debt investors want to hold in a market panic.

Overall, it is gratifying to see that, with few exceptions, our 2019 award winners have managed to maintain their superior performance in relative terms, even in the testing environment of recent months.

2019’s sustainable winners prove their worth 

Fund IA sector 1-yr total
return (%)
1-yr sector
average return (%)
Royal London Sustainable World Trust Mixed Invt 40-85% Shares 7.9 -8.0
Miton European Opportunities Europe Ex UK 6.7 -9.4
M&G Global Government Bond Global Bonds 5.5 2.3
Royal London Sustainable Diversified Trust Mixed Invt 20-60% Shares 4.8 -7.2
T. Rowe Price Global Focused Growth Equity Global 2.3 -6.0
BMO Sustainable Opportunities Global Equity Global 2.3 -6.0
Rathbone Ethical Bond Fund Sterling Corporate Bond 1.0 0.8
L&G UK Property UK Direct Property 0.2 -1.5
JPMorgan Asia Growth Asia Pacific Income -1.3 -11.3
JPMorgan US Small Cap Growth North American Smaller Cos -6.3 -13.9
Baillie Gifford Japanese Japan -9.4 -3.4
ASI Responsible UK Equity UK All Companies -9.5 -19.2
SDL UK Buffettology "UK All Companies -10.8 -19.2  
Royal London Sterling Extra Yield Bond Sterling Strategic Bond -11.0 -1.4
Ninety One (Investec) UK Equity Income UK All Companies -11.0 -19.2
Fidelity Global Property Property Other -11.1 -13.2
Smith & Williamson Defensive Growth Targeted Absolute Return -12.7 -3.3
Baillie Gifford Emerging Markets Growth Global Emerging Markets -12.9 -15.4
M&G Global Dividend Global -16.9 -6.0
TB Wise Multi-Asset Growth Flexible Investment -17.3 -8.1
Cavendish AIM UK Smaller Companies -24.1 -17.9
Schroder Income UK Equity Income -29.8 -20.6

Source: FE Analytics, as at 31 March 2020

 

This article was originally published in our sister magazine Money Observer. Click here to subscribe.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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