We review the performance of sister magazine Money Observer's 2018 fund award winners, some of which also won in 2019.
Just in case investors had forgotten what volatility felt like, markets issued a sharp reminder over the past 12 months. It was the type of environment in which good active managers should thrive, as share price performance grew more differentiated – but there were plenty of traps for the unwary.
The US was both the easiest place to make money and the toughest to beat the index, and that was reflected in the annual performance of our 2018 fund award selections.
Once again, the US market defied its critics and beat all other developed market indices. The S&P 500 was up 12.8% over the year to 1 May, in spite of a nasty wobble for the technology stocks that are its largest sector grouping. These saw a 20%-plus drop amid the fourth-quarter volatility.
Still better to be in tech
Over the course of the year, it was better to be in these giant technology companies than out, but that wasn't enough in itself. Baillie Gifford American, our 2018 North American award winner, may have had Tesla (NASDAQ:TSLA) among its top holdings, whose share price tracked the erratic statements of chief executive Elon Musk, but it still delivered a 25% return to its investors over the year, double that of the index.
The team at Artemis also proved its worth, as highly commended Artemis US Extended Alpha rose 18.4%. It too had a tailwind from many of the large technology companies. Its top 10 includes Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN), but its holdings also included drug companies Zoetis (NYSE:ZTS) and Pfizer (NYSE:PFE), plus Qualcomm (NASDAQ:QCOM) and Comcast (NASDAQ:CMCSA).
Both funds issued a robust challenge to the view that active managers can't beat the US index. The growing dominance of technology makes the S&P 500 an increasingly tough index to beat, but the Money Observer 2018 award winners proved it could be done.
Global funds generally fared worse than their US-focused counterparts, with the MSCI World index up just 6.5%. However, Fundsmith Equity, which was highly commended in the Global Growth larger fund category, benefited from investors' continued preference for reliable growth companies. Value managers may contend that the gap between value and growth styles is as big as it has ever been, but the market showed no inclination to cast off growth in favour of value.
The Fundsmith fund benefited from its roster of blue-chips including Microsoft and Facebook (NASDAQ:FB), but as with the US funds, its 22% rise was not only attributable to technology names. Software group Intuit (NASDAQ:INTU) has also been a strong performer, as has Estee Lauder (NYSE:EL). However, it is now £17 billion in size.
Newton Global Income, highly commended in the Global Equity Income category, also outpaced the MSCI World, delivering 15.5% for its investors over the year. Nick Clay continues to do a good job on the £5.3 billion fund. Clay benefited from investors' ongoing preference for reliable growth, with Qualcomm (NASDAQ:QCOM), Informa (LSE:INF), Unilever (LSE:ULVR) and Novartis (NYSE:NVS) in his top holdings.
Not easy in the UK
The UK may be the largest weighting for many investors, but it hasn't been an easy place to invest. Brexit uncertainty has continued to weigh on sentiment towards the UK stock market.
Domestic-focused companies have been hit hardest. The FTSE 100 was up 3.1% over the year, while the FTSE 250 scraped 0.5% and small caps were flat. Nevertheless, some UK small-cap focused funds managed to transcend the wider environment and deliver good returns. Notable was Cavendish AIM, our highly commended UK Smaller Company choice, which rose 16.3%, showing the importance of an experienced manager – in this case, Paul Mumford – in a tough climate.
It was also a good year for the winner of the UK Growth larger fund category, CFP SDL UK Buffettology. The fund, managed by Keith Ashworth-Lord of Sanford DeLand Asset Management, is now £872 million in size. Ashworth-Lord is a seasoned practitioner of 'business perspective investing' as championed by Ben Graham and Warren Buffett. His top 10 holdings over the year included Hargreaves Lansdown (LSE:HL.), Diageo (LSE:DGE) and Games Workshop (LSE:GAW).
Other funds had a tougher time. Highly commended in the UK Growth larger fund category, Marlborough UK Multi-Cap Growth also had a rare year of tough performance, though it remained flat, in line with the small cap index. UK Smaller Companies highly commended Barclays UK Lower Cap is split 52/48 between mid and lower cap, and underperformed both the FTSE 250 and Small Cap indices, falling 5.3% over the year.
It was a better year in general for the UK income funds. As a whole, the UK All Companies and UK Equity Income categories were neck-and-neck. Two of the UK Equity Income choices – larger fund winner Man GLG UK Income and smaller fund highly commended Franklin UK Rising Dividends – saw a creditable performance, rising 5.8% and 2.5% respectively. But JPM UK Strategic Equity Income, the winning choice for UK Equity Income smaller funds, dipped 3.3%.
Sustainable investing gathered momentum, albeit from a modest base. A recent survey by BNP Paribas found 78% of the 300-plus asset management groups surveyed said that ESG (environmental, social, governance) criteria are either playing a growing role or becoming integral to what they do as an organisation. The more people are focused on ethical and sustainability criteria, the more likely these factors are to influence share prices.
The ethical funds among our award winners showed that the historic view that investors need to sacrifice profits for principles no longer holds water. In particular, Royal London Sustainable World, the Ethical Mixed Asset category winner, showed good performance, rising 11.5%. Holdings in Microsoft and Alphabet (owners of Google) helped sustain returns over the year. Ethical Equity choice Pictet Global Environmental Opportunities was up 5.5%, while Ethical Bond winner Rathbone Ethical Bond was up 3.1%.
Asia's mixed pickings
Asia was a mixed bag. The Pacific ex Japan index was up 3.3%, but this masked significant volatility; Chinese equities in particular were subject to a huge sell-off and then a meaningful recovery as investors reacted to the drama of the trade talks between the US and China.
In this environment, our Asia Pacific award winners turned in a creditable performance. The highly commended JPM Asia Growth rose 7.6%. Admittedly, it had to ride the highs and lows of the technology cycle – it has 8.1% in Tencent (SEHK:700), another 7.1% in Alibaba (NYSE:BABA) and a further 7% in Taiwan Semiconductor (NYSE:TSM) – but over the year as a whole it retained its top-quartile position. Winner Veritas Asian has a more eclectic top 10, including Australian winemaker Treasury Wine Estates (ASX:TWE) and luxury brand group Kweichow Moutai; but in a year when it was all about technology, this meant it was only just ahead of the index, returning 3.6%.
Winning emerging market choice Hermes Global Emerging Markets ticked up 4.8% over the 12 months, while the MSCI Emerging Markets index dipped 3% over the same period. Manager Gary Greenberg held around a third of the fund in China.
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It was generally a good year for bonds, against all the odds. Full-year returns for investors were strong after the Fed paused rate rises.
Top of the tree were index-linked gilts, but UK gilts and UK corporate bond funds turned in a good performance over the year, with the IA sectors up 5.3% and 4.1% respectively. Emerging market bonds were another area of strength after the recovery in emerging market currencies from September onwards.
The bond funds among our award winners were all approximately in line with their wider markets. Marlborough Global Bond won the Global Bond category and returned 4.5% over the year, while Royal London Sterling Extra Yield, highly commended in the Sterling Bond category, brought in 5%.
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For the sake of balance, it is worth mentioning those funds that were disappointing this year. The performance of Europe award winner Marlborough European Multi-Cap, down 3.9%, reflected the difficulties of investing in European mid and small cap companies over the period; and T. Rowe Price European Smaller Companies had a similarly tough year in a difficult market, falling 5.1%.
That said, given the volatility and unpredictability of markets over the past 12 months, many of our 2018 choices have shown that they can thrive in challenging conditions. It is a testament to the managers' experience and skill that so many have outpaced their sector peers.
How our 2018 Fund Award Choices performed over the year
|Name||Award category||Winner or HC?||Total return over 1yr (%)||IA sector average (%)|
|Baillie Gifford American B Inc||North America||Winner||25.0||16.1|
|Fundsmith Equity I Acc||Global Growth larger||HC||22.2||9.1|
|Artemis US Extended Alpha I Acc GBP||North America||HC||18.4||16.1|
|Cavendish AIM B||UK Smaller Cos||HC||16.3||-1.3|
|Newton Global Income Inst Inc||Global Equity Income||HC||15.5||8|
|Castlefield CFP SDL UK Bufftlgy Gen Inc||UK Growth larger||Winner||13.9||1|
|Royal London Sustainable World A Inc||Ethical Mixed Asset||Winner||11.5||2.9|
|Baillie Gifford Global Inc Growth B Inc||Global Equity Income||Winner||10.2||8|
|SLI Global Smaller Companies Instl Acc||Global Growth larger||Winner||9.6||9.1|
|JPM Asia Growth A Net Acc||Asia Pacific||HC||7.6||3.3|
|Franklin UK Rising Dividends A Inc||UK Equity Income smaller||HC||5.8||0.5|
|SLI Global Real Estate Inst Acc||Global Property||Winner||5.6||7.7|
|Pictet - Global Envir Opps I USD||Ethical Equity||Winner||5.5||9.1|
|Royal London Sterl Extra Yld Bd A||Sterling Bond||HC||5.0||2.4|
|Hermes Global Emerging Mkts R EUR Acc||Global Emerging Markets||Winner||4.8||0.9|
|Marlborough Global Bond A Inc||Global Bond||Winner||4.5||3.2|
|L&G UK Property I Acc||UK Property||Winner||4.2||7.7|
|Unicorn Mastertrust B||Mixed Asset higher risk||HC||3.8||3.4|
|Veritas Asian A GBP||Asia Pacific||Winner||3.6||3.3|
|Rathbone Ethical Bond R Acc||Ethical Bond||Winner||3.1||3.3|
|Man GLG UK Income Retail Inc B||UK Equity Income larger||Winner||2.5||0.5|
|Jupiter UK Smaller Companies||UK Smaller Cos||Winner||2.2||-1.3|
|Lazard Developing Markets Eq A Inc EUR||Global Emerging Markets||HC||1.4||0.9|
|GAM Star Credit Opps (GBP) Ord GBP Inc||Sterling Bond||Winner||1.3||2.4|
|AXA Framlington Monthly Income R GBP Acc||UK Equity Income larger||HC||1.2||0.5|
|Baillie Gifford Japan Small Co B Inc||Japan||HC||0.8||-9.3|
|Orbis OEIC Global Equity Standard||Global Growth smaller||HC||0.8||9.1|
|LF Miton Worldwide Opportunities A Acc||Mixed Asset higher risk||Winner||0.8||3.4|
|Slater Recovery A Acc||UK Growth smaller||Winner||0.7||1|
|MI Metropolis Value A Acc||Global Growth smaller||Winner||0.6||9.1|
|MI Hawksmoor Vanbrugh A Inc||Mixed Asset lower risk||Winner||0.6||2.4|
|Artemis Monthly Distribution I Acc||Mixed Asset lower risk||HC||0.6||2.4|
|Marlborough UK Multi-Cap Growth A Inc||UK Growth larger||HC||-0.3||1|
|AS SICAV I SelEuro HYBd A Acc EUR||Global Bond||HC||-0.4||3.2|
|JPM UK Strategic Equity Income A Net Acc||UK Equity Income smaller||Winner||-3.3||0.5|
|Lindsell Train Japanese Eq A Yen Acc||Japan||Winner||-3.7||-3.6|
|Marlborough European Multi-Cap A Inc||Europe||Winner||-3.9||-0.4|
|T. Rowe Price Eurp Smlr Coms Eq I EUR||Europe||HC||-5.1||-2.9|
|Barclays UK Lower Cap M Dis GBP||UK Growth smaller||HC||-5.3||1|
Notes: Funds ranked by one-year returns. Bold = fund beat sector average. Source: Morningstar, as at 1 May 2019.
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