ii Super 60 performance review 2023

The key factor that influenced the returns of funds on the Super 60 list during 2023 was country allocation, with style and sector largely taking a back seat.

The best-performing fund on the list was the Man GLG Continental European Growth Portfolio fund with a gain of almost 20%. Managed by the highly experienced Rory Powe, this is a concentrated, high-quality growth fund that has been persistently overweight the consumer discretionary and IT sectors.

The concentrated nature and the growth style bias can result in significant differences in returns versus the mainstream MSCI Europe ex-UK Index. Over the past year, the strong returns from European equities have been enhanced by the manager’s positive stock selection in sectors such as healthcare and industrials.

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The second fund on the outperformers list also invests in continental European equities. Janus Henderson European Selected Opportunities was added to the Super 60 at the start of 2023. The managers combine bottom-up and top-down research, paying close attention to global macro and sector trends. Senior manager John Bennett has added considerable value through stock selection over the years, while also proving adept at steering the portfolio in line with his macroeconomic views. For the former, he focuses on identifying companies with attractive cash flow return on investment (CFROI), that are undervalued, or those that are at inflection points where profit margins and/or CFROI are either improving or have the potential to do so in the future. Versus the mainstream MSCI Europe ex-UK Index we have seen strong returns over the past year as a result of good stock selection in a variety of sectors such as healthcare, industrials, IT and materials.

The next two outperforming funds reflect the strength in the US equity market over the year. The first is an index tracker fund, Vanguard US Equity Index, which tracks the returns of the S&P Total Market Index. The return over the year was 18.6% and was driven by the mega-cap stocks in the IT, consumer discretionary and communication services sectors. The other US equity fund is Jupiter Merian North Amer Equity Equity with a gain of 17.9%. This fund invests across the market-cap scale using a quant approach (mathematical models, data analysis and algorithms) that draws on five distinct factors, including a market-dynamics component that considers momentum trends, short-term signals and dynamic valuation which enables the model to dynamically shift between value and quality to reflect changing market dynamics. Over the year, the fund produced good positive returns reflecting the relative performance of the US market. Although the fund narrowly underperformed its MSCI North America Index benchmark, due to some weakness in IT stock selection, there was success versus peers with outperformance versus the average for the Morningstar US Large-Cap Blend Category.

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The final fund in the top five outperformers list is TR Property (LSE:TRY), with a share price return of 18.3%.After a period of weakness due to concerns over rising interest rates and demand, this portfolio of pan-European property equities and UK physical property provided investors with a strong return over 2023. The fund had a very strong end to the year reflecting the likelihood that interest rates have peaked. The manager of the trust has made good use of the flexibility in the approach to take advantage of gearing levels and discounts to net asset value (NAV) within the investment universe, and broader sector trends.

At the bottom of the performance table, we find Baillie Gifford Shin Nippon (LSE:BGS). It follows the more extreme end of the Baillie Gifford house process and focuses on identifying stocks with high earnings and sales growth. This small-cap, growth style and element of gearing mean that the trust is regarded as a higher-risk product. Investors should expect it to show significant variability in share price performance depending on market conditions which is often exacerbated by movements in the discount, as has been the case over the past year. The share price decline was 14.1% over 2023.

Discount moves have also impacted the share price returns of the next fund on the under-performers list, Balanced Commercial Property (LSE:BCPT). Although the NAV was essentially flat over the year, the widening discount resulted in a share price decline of over 12.5%. The trust provides exposure to prime UK commercial property with a bias towards central London and the South East, and over the year it has been subject to negative views on the prospects for commercial property in the face of domestic economic uncertainty and variable data on the future demand for office space. Providing broad exposure to sectors within the UK market, the trust has a lower allocation than some peers to the stronger performing areas of the market such as industrial and retail warehousing. Despite this, the NAV of the trust did not see a decline over the year, and it is pleasing to see the discount narrow in the face of better news for the sector in the final months of 2023.

WisdomTree Enhanced Commodity ETF (LSE:WCOB)  is another fund that has regularly featured on our quarterly updates of top and bottom performers. The fund provides investors with exposure to four broad commodity sectors (energy, agriculture, industrial metals, and precious metals) plus up to 5% in bitcoin. Recent performance has tended to fluctuate with moves in the energy price where the fund has a large allocation, and this is reflected in the loss of just under13% for the year.

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With a share price decline of just over 9%, Fidelity China Special Situations (LSE:FCSS) is the next fund on the list. However, this return reflects very strong performance relative to the mainstream MSCI China Index, which was down over 16% for the year, and the MSCI China SMID Index which was more than 21% down on the back of concerns over economic growth and regulation. The trust has been managed by Dale Nicholls since April 2014 and benefits from an analyst team researching Asian equities that is over 50-strong, with a significant presence in China. The manager seeks undervalued companies that have the potential to deliver over the longer term through good industry dynamics and competitive advantages. Versus the MSCI China benchmark, there is a clear bias to mid- and small-cap companies where the manager believes opportunities exist due to a lack of coverage. Stock selection was very strong over 2023, particularly within the consumer discretionary, healthcare and industrials sectors.

The final fund on the underperformers list is Lindsell Train Japanese Equity. Although the Japanese equity market posted good returns in 2023, this fund showed significant underperformance with a loss of 8.4%. The bias to small- and mid-cap stocks that is a feature of the approach was a headwind, as was another longstanding characteristic, the heavy overweight to consumer staples. These biases along with some weakness in stock selection explain the underperformance seen. Given the fund’s established approach, quality focus and concentrated nature, investors should expect periods of relative weakness when the fund’s style is out of favour.

Top five Super 60 funds in 2023

Source: Morningstar - Total Return for funds / Market Return for investment trusts - (GBP) to 31/12/2023.

Bottom five Super 60 funds in 2023

Source: Morningstar - Total Return for funds / Market Return for investment trusts - (GBP) to 31/12/2023.

Top five Super 60 funds for a five-year period

Source: Morningstar - Total Return for funds / Market Return for investment trusts - (GBP) to 31/12/2023.

Bottom five Super 60 funds for a five-year period

Source: Morningstar - Total Return for funds / Market Return for investment trusts - (GBP) to 31/12/2023.

Most-bought Super 60 funds in 2023

Most-sold Super 60 funds in 2023

Changes to the Super 60 list (under review/developments)

No constituent changes in Q4 2023.

October – Fidelity Multi-Asset Income Fund – Placed Under Review

The fund was placed under review on account of the announcement of the retirement of fund manager Eugene Philalithis.

October – Janus Henderson European Selected Opportunities Fund – Removed from Under Review.

The fund was placed under review in September on the basis of the announcement of retirement of manager John Bennett. The fund was removed from being under review following review given the well-managed transition to the co-managers and our conviction in the team.

Super 60 videos in Q4

Diverse Income Trust

Gervais Williams: there’s plenty of overlooked shares with high yields

Gervais Williams: UK market to outperform for 10 or 20 years

Fidelity Special Values

Value investor names the bargain banks he’s backing

This could be the catalyst for ‘unloved’ UK market in 2024

abrdn Global Smaller Companies

Falling interest rates will trigger a small-cap recovery

Two UK small-caps we are excited about

Capital Gearing

Peter Spiller: it’s like the 1960s! Half my portfolio is in this investment

Peter Spiller: ‘embarrassing’ discount will close soon and reward long-term investors

Lindsell Train UK Equity

Nick Train: the UK stock market has a dividend problem

Nick Train on succession planning and the one share he expects to hold forever

TR Property

TR Property: ‘swift recovery’ coming as interest rates peak

Offices, the high street and warehouses: the new rules of property investing

Murray International

How Murray International has a higher yield than most rivals

Bruce Stout: I’ve bought bargain bonds twice in 20 years, but won’t buy gilts