India, energy and US large cap funds were the big winners of 2021, while the bottom of the table saw a mixture of China and emerging market vehicles suffering double-digit losses.
Last year, the best-performing fund rated by Morningstar analysts was up 42.54% and the worst performer was down 24.66%. The results represent the biggest investment themes of the year: an energy crisis that sent prices soaring, increased Chinese regulation, coronavirus and inflation.
This is a complete change from 2020, where US, tech and China funds excelled, while UK equity income and large-cap funds clustered at the bottom. And as we noted in our round-up of the best-performing investment trusts, the past year also saw an abrupt shift in the investment landscape, handing energy and financial stocks a comeback.
Our Morningstar Direct stats also reveal that the overall returns of 2021 were more aligned with 2019's numbers than 2020. In 2019, the best and worst funds returned 35% and -7%, whereas 2020 saw returns vary from 110% to -34%. This past year, about 340 rated funds achieved returns in the double digits, while 237 funds saw overall losses.
BGF World Energy saw the best performance in 2021. The fund has featured in monthly top 10 table several times in the past 12 months, and, by September, when it was the best performer, it was already up 35% over the year. In December, its returns were 0.22%.
The only Gold-rated fund that made it into the top 10 was Dodge & Cox Worldwide Stock. Also this fund had a disappointing December with a 2.93% return, but ended 2021 with a positive return of 32.51%.
Category-wise, India equity funds had the biggest presence in the top 10. Covid-19 led to a disastrous spring for the country but the stock market has since bounced back. The best performance of the four featured in our list was Silver-rated Stewart Investors Indian Subcontinent Sustainability. The fund returned 35.16%.
The worst performing funds were a mix of different categories. Silver-rated UBS (Lux) Equity Fund - China Opportunity, was down 24.66% in 2021, making it the biggest faller among rated funds. The second and third worst performers were Baillie Gifford’s Worldwide Discovery and Global Discovery with losses of 21.32% and 21.20% respectively. The two Bronze Rated funds, which invest in global small- and mid-caps, saw returns above 70% in 2020 but have been a mainstay at the bottom of our list for the last few months.
Alongside China and global equities, Lindsell Train Japanese Equities and UBS (Lux) BS Asian High Yield were also among the losers. Demonstrating the variations at the bottom, Franklin Biotechnology Discovery was in 11th place, just about beating the bottom 10 list with losses of 16.60%.
Overall, Latin America, which has consistently underperformed in the past few months, also managed to avoid the bottom, but not by much. The same holds true for fixed income categories, which dominated the weaker end of the performance list. As Ben Yearsley, director of Shore Financial Planning says, it’s hard to deliver positive performance in the face of rising bond yields.
LatAm Fund Bounces Back in December
In December, UK and European funds dominated the top 10 list, and while small-cap funds had the most entries, flex and large caps did well too. Man GLG Undervalued Assets, a UK flex-cap equity fund, returned 6.44%, the best performer, followed by Lazard Global Listed Infrastructure Equities with a 6.22% gain. And, in a surprise comeback after several months at the bottom, one Latin American fund, Aberdeen Standard Latin American Equity, returned 5.52% (but was down 15.74% overall last year).
At the bottom of the December numbers there are four US large cap and three technology funds, as well as some China and bond funds. MS INVF US Growth had the worst return (-14.48%), followed by T. Rowe Price Global Technology Equity.
What can we expect from the coming year?
“The key themes of 2021 remain in place for 2022 (unfortunately)," Yearsley says.
"Will another new strain of Covid-19 emerge, derailing the ongoing recovery? Will inflation naturally fall back? And how quickly will central banks admit to policy error? The last point was slightly tongue in cheek; however, it is probably one of the biggest risks this year – will central banks raise rates too quickly or not quickly enough?”
