If you had been brave enough to have invested in the S&P 500 five years ago – you would have doubled your money. If you had chosen to put money in the FTSE 100 instead a £1,000 investment would now be worth £1,600. Risk taking contrarian investors may even have been savvy enough to buy European stocks in 2009 – and would have been rewarded with a 60% rally.
In short, it has been easy to make money if you’d been invested in developed market equities since the global recession. Index trackers and actively managed funds both have made considerable gains.
But after a five-year rally, many professional investors are nervous. Marcus Brookes, multi-asset manager at Schroders said both bonds and equities are due a correction over the next year.
“We can’t be certain of the timing, so we would rather have as little exposure as possible and risk missing out on incremental rises in asset prices, than have exposure and lose a lot of our investors’ money,” he said.
Tom Becket, chief investment officer of Psigma said after one of the most powerful equity bull markets in the history of man, investors need to be aware that the ripe, low-hanging fruit have all been picked.
And F&C Investments’ director of European equities Mark Nichols said that investors should not expect the next five years to deliver the kinds of returns of the past five years.
What happens to these markets next divides investors. Some believe that a correction is due – and that unless you take your cash out of equity markets soon you face losing cash. Others think that we’re in for another era of stagnant sideways movement – much like UK equity investors experiences from 1990 to 1995.
Whether you believe stock markets are overvalued, or that fundamentals support further growth in equity markets, it pays to be prepared.
A properly diversified investment portfolio should hold uncorrelated components that make gains – or protect against losses – whatever the market backdrop. From March 3, 2003 to March 3, 2009 the FTSE 100 gained – and then lost more than 90%. Market cycles such as these need an active fund manager – as a tracker would have gained just 1% in six years.
While plenty of fund managers made money in the rally to the peak in October 2007, far fewer protected investors’ capital when the market fell. The following UK equity fund managers have a track record that spans that six year period – and they managed to beat that 1% benchmark rise.
It is worth noting that among the actively managed funds that beat the index were UK equity income funds. Income funds often fare better in a flat market as re-invested dividends can help to deliver positive total returns when share prices aren’t moving.
Franklin UK Mid Cap Fund
This Silver Rated fund returned 119% in the six years to March 2009. Paul Spencer, an experienced fund manager, has managed the fund since Feb 2006. He focuses entirely on stocks in the FTSE 250 Index, investing in companies that he believes are high quality and attractively valued. His approach is flexible, and his analysis is rigorous.
Invesco Perpetual UK Aggressive
This Morningstar Rating five-star fund returned 100% over the six year period. This fund will normally hold a concentrated portfolio of stocks and there will be no direct correlation to any specific index.
M&G Recovery
This Gold Rated fund returned 71% during the difficult six year period under analysis. It has had a disappointing recent performance, but Morningstar analysts are confident in the management and the fund is still ahead of the benchmark and category since manager Tom Dobell took charge at the end of March 2000.
AXA Framlington UK Select Opportunities
This Gold Rated fund grew 67% over the six years. It features a consistency of management and approach that, in Morningstar analysts’ opinion, make it one of the best offerings in its sector.
JP Morgan UK Dynamic
This Bronze Rated fund returned 60% in the six years from March 2003. The quantitative-led model underpinning the fund has gone through several modifications since its development in the 1990s, and as yet too little evidence to gauge the success of the recently added quality factor in providing downside protection.
