Good year, and bad, for investors: The winners and losers in a turbulent 12 months
Friday 16 November 2012
The past 12 months have been challenging for investors, with economic instability, political uprisings, election dogfights, scandals, sporting triumphs, and even ferocious storms having shaped the level of returns they have enjoyed.
Some will have made bumper profits, and others will have been left nursing staggering losses, depending on where they put their faith and money at the back end of 2011. If this past year has taught us anything, it is the importance of having a diversified spread of investments.
So who have been the winners and losers? Using a combination of financial data from Morningstar and the expert commentary of fund managers and advisers, we have analysed the sectors, funds and regions that have done the best – and worst – since early November 2011.
The good news is that the top 10 sectors have all enjoyed double-digit returns over the past year, according to Morningstar data compiled for The Independent to November 8, but IMA UK Smaller Companies has come top of the pile with an average return of 16.43 per cent.
This doesn't surprise Mark Dampier, head of research at Hargreaves Lansdown, who insists they were cheap at the beginning of the year because they had been overlooked. The fact they subsequently confounded their critics, he points out, bolstered their standing.
"The market was risk averse and didn't expect much from smaller companies because they thought they would be among the first to be clobbered in a recession," he explains. "However, the results achieved by companies have been excellent – and far better than had been anticipated."
The achievements of smaller-company funds have also highlighted the fact that they are often ignored by investors, despite the fact that such funds have been among the best performers over the past couple of decades, over which time they have changed enormously, suggests Mr Dampier.
"They used to be much more manufacturing-based, and tied to the UK economic cycle, but many are now a lot more global in nature, with some having 50 per cent of their revenues coming from overseas," he explains. "It's also a less researched market so there's more likely to be anomalies."
Elsewhere, bonds have done very well. According to Andy Gadd, head of research at Lighthouse Group, corporate bond funds have been flavour of the month for some time among nervous investors who are wary of equities but want better returns than they can get with cash.
"It must be remembered that corporate bond fund managers are facing challenges such as funds becoming increasingly unwieldy and facing liquidity issues in the future," he says. "Another is the danger of inflation increasing, as well as the danger that in order to generate good levels of income certain managers are having to take greater risks with underlying credit quality."
The only sector to have lost money over the past year – based on the average returns of its individual funds – is IMA Japan. According to Patrick Connolly, a certified financial planner at AWD Chase de Vere, this has become something of a perennial problem.
"The Japanese economy has stuttered for decades, and there is little sign that the economic reforms needed to reverse this are being taken," he says. "This would suggest that the Japanese stock market will continue to struggle. However, Japan does also experience some fairly dramatic short-term bounces. The problem is that nobody can predict when these will happen."
The difference between the best and worst performing funds over the past year has been pretty staggering. The stand-out performers – from across all the IMA sectors – have risen by almost 40 per cent, while those at the other end of the performance tables have lost a similar amount.
Perhaps unsurprisingly given the fact that IMA UK Smaller Companies has been the best-performing sector, seven of the top 20 performing funds over the past year have hailed from this sector – including four of the top 10.
The best have been Fidelity UK Smaller Companies (34.69 per cent); River & Mercantile UK Equity Smaller Companies (31.76 per cent); Liontrust UK Smaller Companies (31.75 per cent); and Cazenove UK Smaller Companies (28.37 per cent).
However, the number one fund is Axa Framlington Biotech, which has returned an impressive 37.59 per cent. This fund, run by Linden Thomson, aims to provide long-term capital appreciation by investing in global biotechnology, genomic and medical research industries.
The strong returns are being attributed to factors such as the pipeline of drugs from Onyx Pharmaceuticals that have received positive feedback from the US Food and Drug Administration. Looking ahead, merger and acquisition activity in the sector remains buoyant with further waves of consolidation expected.
At the other end of the table, however, are commodity and natural resources funds which have been suffering. Mr Dampier at Hargreaves Lansdown attributes this to worries over the prospect of a China slowdown.
"Commodities have generally been off the boil over the past 12-18 months, and this means it can get quite painful," he says. "For example, even though the oil price has remained strong, it hasn't been a great equity investment as the market just hasn't been interested in it."
Anyone who invested in the IMA North America sector a year ago will have made – on average – just under 10 per cent profit over the past year, despite the uncertainty of the Presidential election.
However, Patrick Connolly at AWD Chase de Vere points out that we are still no closer to knowing what steps will be taken to address the forthcoming fiscal cliff or the favoured way of dealing with the longer term economic problems facing the US.
"This uncertainty is intensified by the Republicans controlling the House of Representatives, and the Democrats controlling the Senate, meaning that a political resolution might be difficult to achieve," he says. "We can therefore expect continued volatility in the US markets in the coming weeks."
Then you have Europe. Despite having become something of a pariah over the past few years, the IMA Europe excluding UK sector is up 10 per cent over the past 12 months, while IMA European Smaller Companies has delivered closer to 12 per cent over the same period.
Juliet Schooling, head of research at Chelsea Financial Services, partly attributes the success to the pledge during the summer by Mario Draghi, president of the European Central Bank, to do "whatever it takes" to hold the euro currency together.
"People were steering clear of Europe and being understandably quite nervous about the situation which is why valuations had become so low, but Draghi's comments restored a bit of confidence to the market," she says.
"It really came down to valuations because there were plenty of strong companies – global leaders – that were unloved just because they were in Europe."
Dennis Hall, founder of Yellowtail Financial Planning, insists the past year hasn't actually been as bad as it's been portrayed in the media. "There is constant bad news about the likes of Spain and Greece, so you get the feeling that the world is going to hell in a handcart, but the performances of markets have been pretty good," he says. "People with defensive portfolios have been doing okay with some bond funds having delivered double digit returns."
Gavin Haynes, managing director of Whitechurch Securities, agrees the last 12 months have been OK, particularly in comparison to the highly volatile climate experienced since the global financial crisis. "I don't want to speak too soon but we've actually started to see a reduction in the levels of volatility and a gradual return of investors' appetites to take on risk," he says. "Traditionally, lower-risk assets, such as government bonds, have provided pretty disappointing returns, whereas riskier areas, such as equities, have produced almost universally attractive returns in 2012."
Without a crystal ball, it is impossible to say for certain what the coming year has in store for investment markets, but the latest economic data appear – on the face of it, at least – to be encouraging for private investors. For example, 33 of the 36 IMA sectors achieved positive returns during the third quarter of 2012 (92 per cent), according to the latest FundWatch survey from Thames River Multi-Capital. This compares with 22 per cent in the previous quarter, in which 28 sectors made negative returns.
The company's quarterly analysis of retail funds revealed that the IMA Europe excluding UK sector was the best performer in the period, gaining 9.3 per cent, closely followed by the IMA UK Smaller Companies, which rose by 8.4 per cent.
Elsewhere, the analysis of dividends by Capital Registrars also makes encouraging reading with total dividends for 2012 forecast to be £78.6bn – a 15.6 per cent increase on 2011 and £3.6bn higher than was forecast at the start of the year. Its formal forecast for 2013, meanwhile, is £81bn.
"We remain concerned about the weakness of the economy both in Britain and around the world," states its report. "Nevertheless, cash flow is still strong, and corporate balance sheets are healthy. Even in the event of difficulty maintaining profits, firms will be keen to maintain dividend payments where they can, as not to do so sends a very negative signal to investors."
Co-operative Energy looks to future with User Chooser
Bare necessities of life cost a pensioner £10,000
Employees will be able to request flexible hours in drive to make workplaces family friendly
The 10 Best money-saving sites
Credit unions to offer instant online approvals as ministers clamp down on payday loans industry
- 1 Howard Jacobson: Let's see the 'criticism' of Israel for what it really is
- 2 Instagram of US airport security chiefs: Lipstick knives and IED training kits among items seized
- 4 PornHub begs users to stop uploading video clips of Brazil getting beaten 7-1
Sustained immigration has not harmed Britons' employment, say government advisers
Australia facing international condemnation after turning around Sri Lankans at sea
7/7 memorial defaced on anniversary of 2005 attacks with ‘Blair lied thousands died’ graffiti
Even when it brutalises one of its own teenage citizens, America is helpless against Israel
There’s a nasty smell in the political air – and it’s coming from the Tories
Vanessa Feltz criticises 'vile' reaction to Rolf Harris allegations
iJobs Money & Business
£60000 - £75000 per annum: Harrington Starr: Business Analyst Consultant (Fina...
£60000 per annum: Harrington Starr: A leading provider in investment managemen...
£600 - £700 per day: Harrington Starr: AVS, JVS Openlink Endur Developer JVS, ...
£30000 per annum: Harrington Starr: A global leader in trading platforms and e...
Day In a Page
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay