It’s coming up to a year since we chose eleven funds we thought might perform well in 2020. With some trepidation we’re now revisiting the list to see how we did…
To recap, back in November 2019 the Armchair Trader team looked at a wide cross-section of investment sectors and picked out what we felt were the best funds to invest in at the time.
We looked only at funds with at least a three year track record of positive performance at the time. From those we focussed on some of the best performers and took into account ratings from independent fund data companies such as Morningstar and Trustnet.
Before we crack on and see how our Unit Trust selections did, a reminder that none of the following is advice. We would always recommend seeking professional advice from a financial adviser, knowing your own appetite for risk, and doing your own research. We have linked to a number of different websites where in-depth information on all the funds listed can be found.
We examined the following investment sectors:
- Asia Pacific
- Bonds & Gilts
- Emerging Markets
- Ethical, Green & Sustainable Funds
- European Equities
- Technology & Biotechnology
- UK Equities
- US Equities
- In conclusion
Best Asia Pacific Funds
Background: The Asia Pacific sector (Asia-Pac or APAC) includes countries adjoining the western edge of the Pacific ocean. The region is stocked with many emerging market economies, many of which have experienced rapid growth over the last few decades, but also includes heavyweights such as Japan, India and, by some definitions of Asia-Pac, Russia and Australia. The unit trust sector had seen returns of over around 75% for the 5 years to last November (official Investment Association sector performance) and the 5 year performance to date now stands at 90% (ex Japan, or 106% including Japan).
Fund Choice: JP Morgan Asia Growth
What we liked: JPM’s long history and experience of investment in Asia. “The choice of equities may not appear revolutionary,” we wrote, “with large holdings in Alibaba, Samsung and Tencent… we like the geographic spread which includes significant holdings in India, Taiwan and Indonesia – more interesting than other funds heavily dominated by mainland China.”
How we did: Winning! Had we invested £1,000 in this fund when we published the original list we’d now have around around £1,210, a gain of 21% before charges. For much of the last 12 months the fund has accelerated ahead of its sector average (23% growth vs 9%). At time of writing the fund is placed in the top 10% of funds within its sector over the last year.
JPM Asia Growth’s largest holdings are Alibaba, Taiwan Semiconductor, Tencent and Samsung, and around half its holdings are in mainland China. Through good stock picking the fund managers appear to have increased the fund’s Alpha (simplistically, a measure of how well the choice of underlying investments improves performance over and above the increase due to a rising market) and conversely decreased the Beta (exposure when markets are falling).
Best Bond & Gilt Funds
Background: Gilts and bond funds perhaps used to be the shabby curate in the room, compared with other actively managed funds, but this perception has changed over time not least because of the implosion of certain investment sectors in the Noughties. As with our fund choice, bond funds now have a wide range of options for investment and can cater to investors with higher appetites for risk than the traditional Gilt investor of the past.
Fund Choice: GAM Star Credit Opportunities
What we liked: The fund’s broad scope to invest in fixed interest securities. Holdings were at the time dominated by UK-based corporate bonds and equities, with no single holding making upover 5% of the fund.
How we did: Winning! OK, we’re only 2% up on this one. The fund’s 12 month performance is a shade over 1% and the year-to-date figure isn’t much better, at 2.6%. It has the lowest volatility of any of the eleven funds on this list and is hanging on to its one out of five rating from Trustnet, largely due to its longer-term performance. Nothing to write home about.
Best Emerging Market Funds
Background: Including much of Eastern Europe, South East Asia and the BRIC countries (Brazil, Russia, India, China) the term ’emerging’ is generally understood to be in relation to Western European, US and Japanese economies, but consistent definitions are elusive. Regardless, for investors the key word here is growth.
Fund Choice: BlackRock Emerging Markets
What we liked: With 50% of investors’ money held in BRIC, and with its top four of its 64 holdings in Samsung (South Korea), Alibaba (China), Petrobras (Brazil) and Sberbank (Russia) we didn’t consider this fund overly adventurous. The fund size has grown from GBP 300m to 500m. BlackRock themselves classify this as a high-risk fund, while it has earned accolades such as four stars from Morningstar and five crowns from Trustnet, who only consider it mildly more risky than investing in the FTSE-100.
How we did: Winning! Up 6.5%. With the same companies now comprising its top four holdings as JP Morgan Asia Growth (our Asia-Pacific pick, see above) and around 40% of the fund invested in mainland China, BlackRock have done a good job here improving the performance gap between the fund and its sector average (when looking at the one- and three-year performance figures) during the market recovery that has taken place since April 2020.
Best Ethical, Green and Sustainable Funds
Background: There was once an official Ethical sub-sector, since absorbed into other sectors such as UK All Companies. That there is no longer such a sector reflects a more modern attitude to investment, whereby a growing audience demand that funds invests in sustainable businesses irregardless of geographical or sector focus, and do not see “Ethical” as a specialist niche. That said, it is perhaps old-fashioned of us to lump together Ethical, Green and Sustainable into one category. We have tried to select a fund with sustainability at the heart of its investment objectives. Investors should note that fund ratings company Morningstar provide a Sustainability rating for mutual funds.
Fund Choice: Unicorn UK Ethical Income
What we liked: Highly rated (by Trustnet.com) managers Fraser Mackersie and Simon Moon, the fund uses as its moral compass a set of regularly reviewed ethical and socially-responsible criteria set by Unicorn as a final layer of screening on top of the MSCI’s Negative Screening and ESG Screening (Environmental, Social and Governance) processes. Rather than duplicate effort, these screens are applied to investments held in Unicorn’s popular UK Income Fund. As one would hope, Unicorn are transparent about their ethical filtering.
How we did: Ouch. We took a hit here of almost 17%. Tracking the performance of its constituent index (UK Equity Income) closely, and comprising 95% UK Equities, it’s the second largest loser in our list and the third most volatile. It has also performed the worst looking at the year to date (down 26%). On the positive side, however, very recent performance has seen it enter the top quartile within the sector over the last quarter, so we can hope that the managers of this relative minnow (GBP £50m) are getting their strategy back on track.
Best European Equity Funds
Background: With 200 funds in this sector showing a positive return for investors over the last three years there is no shortage of good performers here.
Fund Choice: Schroder International Selection Fund Emerging Europe
What we liked: The managers have the latitude to invest in the Middle East, North Africa and states of the former Soviet Union, and can use derivatives and cash. Coming in just under GBP 1bn and investing in around 40 holdings at any one time, the fund’s stated aim to factor sustainability into its investment decisions was a welcome plus.
How we did: Not good at all. Down a massive 20%. This fund was hit very hard by the downturn in Q1 and Q2 2020 and hasn’t recovered well – the year-to-date performance is -22%. Other notable statistics are that compared with the other funds in this list, Schroders ISF Emerging Europe has the highest volatility, lowest Alpha, highest Beta and second lowest Sharpe Ratio (of -0.01, the Unicorn Ethical fund has -0.02). The last available annual management report for this fund is dated 31 December 2019 (three days before China informed the WHO of an outbreak) and references the coronavirus “having a severe effect on global economic activity” for the year ahead.
Best Global Funds
Fund Choice: Fundsmith Equity
What we liked: Impressive performance over the previous five years, numerous accolades. It is due to the manager’s consistent track record that this GBP 17bn fund made an appearance here.
How we did: Winning! Up 13%. Namesake manager Terry Smith has done an excellent job in this trying year. The fund’s stated aim to be a long-term investor and not engage in short-term trarding strategies looks to have paid off; the fund has grown in size to GBP 21bn. Its largest holdings include Microsoft, PayPal, Facebook, Intuit, Philip Morris and Estee Lauder.
Honourable Mention: Lindsell Train Global Equity
What we liked: Positive reputations of Michael Lindsell and Nick Train for this GBP 8bn fund. A third of the portfolio was UK-based, and another third US. Top holdings were FMCG (fast-moving consumer goods) heavyweights Unilever, Diageo and Heineken.
How we did: Winning! Up 4%. Its Beta ratio below 1 indicates less exposure to falling markets than other funds with the same benchmark. The fund size remains just under GBP 8bn.
Best Technology & Biotechnology Funds
Some of us old enough to remember the turn of the millennium get a cold shiver when thinking about investing in tech funds, but since that bubble popped tech companies have grown up. Here at The Armchair Trader we like Fitness-tech, Age-tech and innovative integrations of technology into modern life. For example, as the UK population ages the ubiquitous fitness trackers will be worn by an older population. We expect wearables will soon encompass a mash-up of existing tech, combining fitness tracking (Garmin, FitBit, Apple, etc.) with fall alerts (e.g. Vodafone’s V-SOS band) and a tie-in with insurance providers (e.g. Vitality Health). The latter may well drive this trend, being keen to correlate premiums to healthier lifestyles in the same way they may already encourage you to install a box in your car to monitor your safe driving. In the process companies will be collecting – and possible selling – valuable actuarial data on our behaviour.
Fund Choice: AXA Framlington Global Technology
What we liked: Stellar performance over 1, 3 and 5 years. The fund had been returning an average of 17% each year since launch and was able to use derivatives and hedging strategies.
How we did: Winning! Our star performer, this saw 36% growth since our original article. Top holdings Apple, Alphabet, Visa, Qualcomm and Facebook (it has 90% exposure to US companies) have helped it weather the pandemic storm and come out shining. At present it’s looking like 2020 will be an above-average year for this fund.
Best UK Equity Funds
Fund Choice: LF Lindsell Train UK Equity
What we liked: A strong track record over the last decade.
How we did: Loss. Down 4%. The fund size has shrunk by around GBP 1bn from GBP 7bn, though a more detailed analysis would have to be carried out to show if this was due to outflows or a drop in value of underlying holdings.
Honourable Mention: CFP SDL UK Buffettology General
What we liked: Named after the Berkshire Hathaway sage himself, manager and founder Keith Ashworth-Lord runs a diligent operation according to the principles of Warren Buffett’s Business Perspective Investing.
How we did: Again, not great. Down about 2%. Berkshire Hathaway itself hasn’t been performing very well for investors this year despite some of its individual holdings (notably Amazon, Apple) doing well in 2020. A recent – and for Buffett’s investment team, unusual – shopping spree has seen BRK invest in gas pipelines, a US TV network, a chunk of Bank of America and a handful of Japanese trading companies including Sumitomo and Mitsubishi. There could be a very exciting 12 months ahead for Warren Buffett’s legions of followers. But back to UK Buffettology General, again we see a fund whose exposure to UK stocks has dragged it down this year. Its top quartile performance within its sector during 2020 is perhaps still admirable, despite it being negative 8%. Ashworth-Lord will be glad he at least rolled the dice successfully with his current largest investment, Games Workshop.
Best US Equity Funds
Fund Choice: T. Rowe Price US Blue Chip Equity
What we liked: A return of over 18% on average over the preceding five years. 10% of the portfolio ex-US, and rated Gold by Morningstar.
How we did: Winning! Up 26%. The last year has seen the fund reach the milestone size of USD 1bn under management. This has been our second best performer after Axa Framlington Global Technology. The largest holdings, as one would expect from the name of the fund, are tech giants such as Amazon, Facebook, Microsoft and Alphabet.
For the selection of eleven funds as a whole, we have outperformed the FTSE 100, FTSE 250, FTSE 350 and FTSE All-Share, which have shown between a 15-20% fall over the same time period.
The FTSE World index has added a few percentage points. Whether we include the honourable mentions or not, our selections added around 7% on average.
It’s tempting to draw the simple conclusion that the performance has been bolstered in large part by the success of US tech stocks and hindered by UK equities. One lesson for investors here is to see how their funds were exposed to the dramatic stockmarket falls at the end of Q1 and how well they recovered in the subsequent upswing. Did investments merely ride the wave or were they optimised to minimise downside and make the best out of the recovery?
Even if we accept that US Titans were the way to go, does that have any bearing on where we go next? The methodology for choosing the list of funds was not a scientific one, so here in the UK as we look ahead to a winter cocktail of lockdowns, rising unemployment and Brexit are investment opportunities to be found close to home, across the Atlantic or elsewhere? You tell me.
We’d love to hear your thoughts either through the discussion section below, or via our social media channels.
Performance of funds in the selection:
+36.5% AXA Framlington Global Technology
+26.4% T. Rowe Price US Blue Chip Equity
+18.6% JPM Asia Growth
+13.3% Fundsmith Equity
+4.1% BlackRock Emerging Markets
+3.7% Lindsell Train Global Equity
+1.7% GAM Star Credit Opportunities
-4.3% LF Lindsell Train UK Equity
-2.9% CFP SDL UK Buffettology General
-17.0% Unicorn UK Ethical Income
-20.1% Schroder ISF Emerging Europe
(04/11/2019 to 25/09/2020, total return performance, net income reinvested.)