Key takeaways from the fund winners and losers in first quarter

The trends behind the best and worst-performing funds so far in 2021. 

The first quarter of 2021 has seen a long-awaited improvement in fortune for investors focused on value and cyclicals, underpinned by a market rotation in which value stocks outperformed their growth peers.

And that’s reflected in the line-up at the top of the open-ended fund performance tables over the three months to the end of March.

There are several groups of winners clustered there, with no overall runaway sector leader; but a bounceback for unloved parts of the market is clearly in evidence, with the top performers gaining between 17% and 25% over that time. 

Global energy funds from Schroder and Guinness take first and fourth place respectively, benefiting from oil price rises of more than 20% so far this year. As Teodor Dilov, fund analyst at interactive investor, points out: “Strategies that invest in energy-related businesses or companies leveraged to the oil price delivered strong returns over the period.”

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These funds sit alongside a mix of UK equity funds: VT Cape Wrath Focus from the Investment Association’s UK All Companies sector, as well as RWC UK Equity Income and two smaller companies funds.

“The ongoing recovery of UK equities was supportive for funds that specialise in the sector,” says Dilov. For ‘deep value’ funds such as Cape Wrath Focus in seventh place, there’s been an added kicker in the shape of the value bounce.

Small company strength was among the main drivers of growth in the first quarter. That’s borne out by the presence in the table of two internationally focused small-cap funds alongside the Premier Miton and Aberforth UK smaller company offerings.

Here, too, the value theme is in evidence. Edinburgh-based value boutique Aberforth's UK Small Companies is in sixth place, staging a major recovery after 12 months of pain. Moreover, as Ben Yearsley, director at Shore Financial Planning, points out: “Even funds such as VT De Lisle America in third place are small-cap-value focused.”

However, for Yearsley the key question is whether this resurgence of an out-of-favour style is just a short-term phenomenon, or whether it can be sustained. "After such a strong period for growth, value has been looking especially cheap – and as countries re-open from Covid-induced lockdowns, these value and cyclical plays should do well,” he argues.

Top 10 performing funds in first quarter of 2021* 

* Only funds available on interactive investor included. Source: FE Analytics. Data from 1 January 2021 to 31 March 2021.

At the bottom of the performance tables, the picture is much more clear-cut. Discounting VT Garraway Absolute Equity at the very top of the poor performers list, which is in the process of being terminated, gold and precious metals funds account for seven of the remaining nine slots. They have had to contend with a falling gold price and strong sterling performance since the start of the year.

“Although inflation expectations are rising, the usual suspect for hedging against it, gold, did not perform as expected over the period. As a result, funds with strategies highly correlated to the gold price, such as those investing in gold-mining companies, struggled,” suggests Dilov.

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Bank of America cites several reasons why gold has had such a tough run lately, including “lacklustre” sales of jewellery in the face of Covid-19, a decline in demand from central banks and “lack of interest” from investors.

Perhaps the most important thing to learn from this examination of top and bottom performers is the need to maintain a well-balanced portfolio, including value-focused investments alongside more fashionable growth and quality holdings.

As Yearsley points out: “Growth has been in vogue for so long it’s easy to forget that other potentially profitable investments exist. Value and cyclical areas still look cheap despite recent bounces, and with (some) countries reopening they could do well.”

Worst 10 performing funds in first quarter of 2021* 

* Only funds available on interactive investor included. Source: FE Analytics. Data from 1 January 2021 to 31 March 2021.