The past year has been a tough one for fund managers. The vast majority of equity markets fell in 2018 on growing fears of a US recession, worries over the health of the global economy and a trade war.
A cursory glance over the performance figures of funds rated Bronze or better by Morningstar analysts shows just how tough it’s been professional investors. A shocking 91% of the 429-strong list ended the year in the red, with just 38 making money for investors.
Meanwhile, of the 20 best-performing funds of 2017, just one – the Silver Rated Polar Capital Global Technology fund, which eked out a gain of 2.58% – ended 2018 in positive territory.
Below, we profile the five best and five worst-performing funds that are highly rated by our analysts.
5 Best-Performing Funds of 2018
Despite the sea of red investors saw last year, there were some bright spots. And, while in general fixed income held up well versus equities, the top five list contained only stock-picking funds. Bond mandates – Newton International Bond gaining 4.5%, Pictet Asian Local Currency Debt up 4.1% and M&G Global Bond up 3.69% – followed in sixth, seventh and eighth place.
The Silver Rated Lindsell Train Global Equity fund, managed by Michael Linsdell and Nick Train, again put in a stellar year to come out on top with a total return of 11.07%. Since inception, the fund has yet to go a full calendar year losing investors cash and is up 250% since inception in March 2011.
The 2018 gain came despite many of its top holdings having average or poor years. The fund did see returns hit in the fourth quarter of the year, though. In the year to 30 September, it was up 20.6% before losing 8% in the final three months.
Laith Khalaf, senior analyst at Hargreaves Lansdown, expects this to continue, picking it as one of his top fund picks for 2019. "When it comes to investing, we think it makes sense to keep things simple. This is exactly why we like Lindsell Train Global Equity," he explains.
"The managers use a simple philosophy - invest in great companies and hold them forever. We think a good global fund like this can form the bedrock of almost any long-term growth portfolio."
Two funds from T. Rowe Price came in second and third, with its US Large Cap Growth Equity and US Blue Chip Equity funds returning 9.3% and 8.3% respectively. Again, these funds struggled in the final three months of the year, having sat on profits of almost a quarter in the year to 30 September.
Focusing on US large-cap stocks, particularly in the technology sector, served both well, but could cause problems going forward. Both hold Amazon (AMZN) and Microsoft (MSFT) as the two largest holdings, with Facebook (FB), Google owner Alphabet (GOOGL) and Booking Holdings (BKNG) elsewhere in their top 10s.
Rounding out the top five are another pair of stablemates, this time from Stewart Investors. Their Asia Pacific Sustainability and Asia Pacific Leaders offerings returned 7.1% and 5.4% respectively, despite Asian markets struggling more than most.
The former is soft-closed, so new investors cannot access it, but it’s done a cracking job for existing holders, with gains of almost 500% since inception 13 years ago. It invests in Asian firms that are positioned to benefit from, and contribute to, the sustainable development of the countries in which they operate.
On the Leaders fund, Jason Hollands, managing director at Tilney, explains that the fund tends to outperform in falling markets but lag when markets are rising strongly or being driven by more speculative areas.
"The fund is currently defensively positioned, with almost 15% cash at the moment, ready to be funnelled in when the team feel the timing is right," he adds.
Unlike the top three funds, this duo has held up its modest returns through 2018. In fact, the sustainable mandate gained 1.25% in the three months to the end of the year.
5 Worst-Performing Funds of 2018
China has faced a plethora of headwinds this year, notably US President Donald Trump’s trade war with Chinese President Xi Jinping as well as slowing GDP growth. That has set a troubling backdrop for China-specific funds, with GAM Star China Equity the worst-performing Morningstar rated offering, down 23.9%.
The UK, meanwhile, continues to be out of favour with investors, particularly those based overseas, as Brexit uncertainty hangs over the economy and stock market. As a result, a highly rated UK-focused fund came in as second-worst performer.
Richard Watts’ Silver Rated Merian UK Mid Cap fund did well, similarly to most of its UK-related stablemates, in 2017. It gained 28% then, capping off a strong run of six straight years with positive returns. However, 2018 wiped almost all of 2017’s gains out, ending with a loss of 21.5%.
Mid-cap stocks are known to be more domestically focused than their larger counterparts, which might partly explain the results as domestic firms continue to de-rate compared to their internationally facing peers.
Schroder ISF Asian Smaller Companies came in next worst with a loss of 20.9%, followed by Legg Mason Royce US Smaller Companies Opportunities down 20.75%, as the US bull market narrowed during the course of the months. In the year to 30 September, the Legg Mason fund had made 4.6% for investors, but saw a reverse in fortunes for the rest of 2018, like many US funds.
Rounding out the bottom five was Jupiter India, which lost 19.9%. This fund, run by Avinasah Vazirani, actually had a decent final three months, gaining 8.4% to pare back the 26% losses suffered in the first three months of the year.
The Indian market struggled in the first part of 2018 thanks to the continued rise of both the US dollar and oil, of which it is one of the largest importers. But a softening in the oil price helped end the year on a positive note.
Adding to this for Vazirani, some of the small and medium-sized Indian companies in which he invests have underperformed the market, notes Laura Suter, personal finance analyst at AJ Bell.
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