Spotlight on the best and worst of funds

Our list of winners and losers could help you make the right choice for your investment.

Anyone who put their money into the AXA Framlington Biotech fund a year ago has every right to be cracking open the champagne after seeing their investment rise 27 per cent. However, those that backed the SF t1ps Smaller Companies Growth would have lost almost 40 per cent.

Such a stark difference in fortunes illustrates the importance of making the right asset allocation and fund selection calls. Choose wisely and your annual investment can soar in value, but pick the wrong areas and you can just as easily see its value disintegrate before your eyes.

We have teamed up with specialists Morningstar to draw up a list of the best and worst sectors – and individual funds – over the past 12 months, consulted experts to put these performances into perspective, and identified which areas look the most promising for the coming year.

Now it's fair to say that past performance is certainly no guarantee of future returns. In fact, this point is continually drummed into investors, but such data is still important because it can give a very good indication of a fund manager's ability to deliver the goods in various market conditions.

Top sectors

Of the 34 sectors into which investment funds are categorised, 25 have made it into positive territory over the past year as far as average performances are concerned, while nine have lost money, according to Morningstar data compiled from 1 March to 28 February.

The best performers have been the UK index-linked gilts sector, which is up 20.41 per cent; UK gilts, which rose 16.25 per cent; £ corporate bond, after a 6.9 per cent increase; global bond, which went up 6.23 per cent; and the 5.23 per cent rise of £ strategic bond.

According to Patrick Connolly at AWD Chase de Vere, there are clear reasons why fixed-interest sectors have out-performed equities – although he doesn't believe this will remain the case and suggests there's already evidence of investors jumping back into equities.

"Investors have been scared to take risks," he explains. "These fears have been driven by economic concerns, particularly surrounding the eurozone."

Bottom sectors

Unsurprisingly, the Europe excluding UK sector is bottom of the class with an average loss of 7.2 per cent, but Japan (-6.06 per cent) has only done marginally better. China/Greater China comes next with a 4.5 per cent loss, followed by Japanese smaller companies (-4.22 per cent) and European smaller companies (-3.82 per cent).

According to Dennis Hall, founder of Yellowtail Financial Planning, Europe has struggled as a result of the huge uncertainty surrounding the ongoing debt crisis, while the disasters that have befallen Japan in recent years have taken their toll on manufacturing and associated supply chains.

"There have also been fears that China will experience a hard landing because its internal market isn't as strong as the one it has with trading partners," he adds. "Most of the stuff they manufacture is exported and if these countries are in recession there will be less demand for their goods."

Sector analysis

While particular sectors have risen – or fallen – in value, it's dangerous to automatically presume all the funds in an area which has, on average, risen sharply, have had good years. Similarly, there may well be individual portfolios that have done well even though the sector it's in has underperformed.

For example, even though Europe excluding UK has been the worst-performing sector over the past year, it contains funds that made decent returns. Threadneedle European Select has delivered 7.17 per cent and Allianz RCM Continental Europe is up 6.27 per cent.

The China/Greater China sector is another that's down on average figures, but which contains a number of funds that are in positive territory for the year. These include Skandia Greater China Equity, which is up 6.34 per cent, and Aberdeen Global Chinese Equity, which rose 5.19 per cent.

The sectors that have done well also contain poorly performing funds. At one end of the UK index-linked gilt sector, for example, you have the UBS Lg Dated Fxd-Int UK Plus fund delivering almost 25 per cent, while at the other sits the Premier Strategic High Income Bond, which is down 8.4 per cent.

Stand-out funds

Our data shows that funds investing in long-dated gilts and biotech companies have strongly outperformed over the past 12 months. In fact, the funds operating in these areas dominate the top 10 best-performing funds across all sectors, with stand-out performers such as AXA Framlington Biotech and Franklin Biotechnology, being up more than 27 per cent.

According to Darius McDermott, managing director of Chelsea Financial Services, long-dated gilts have done so well as a result of the volatility experienced during the summer of 2011, which was caused by the eurozone crisis and surprise ratings downgrade of the US from AAA to AA by S&P.

"Investors fled anything they perceived as risky and headed for the apparent safe havens of German bunds, the Swiss franc, Japanese government bonds, US treasuries and UK gilts," he says. "Long-dated gilts are extra sensitive to market moves in yields, and so did better than short-dated gilts."

As far as biotech is concerned, any company connected with hepatitis C has done very well in the past year, especially manufacturers being bought out by larger companies, as these are moves which have signalled good returns for shareholders, points out Mr McDermott.

"There is some concern that these companies are now overvalued though," he adds. "It's a difficult sector and IPOs have disappointed in the past so it's not the case that any old stock will do – fund managers have to pick the right ones."

So what does the future hold?

Stock markets look set to remain turbulent while yields on higher-quality corporate bonds look little better than cash, so cash is probably king for cautious investors in the current climate, according to Justin Modray, founder of website Candid Money.

"Those who find cash ISAs too dull might consider absolute-return funds but they should bear in mind these can still lose money," he says. "Funds investing in solid companies paying healthy dividends should also fare better than most in difficult markets."

Investors with longer-term horizons could also look towards emerging markets, he suggests, although they will need to stomach potentially high volatility along the way.

"Immediate prospects look a bit grim, but it's a difficult region to predict so investing and sitting tight is generally sensible," Mr Modray adds.

Markets closer to home are also likely to experience volatility, warns Andy Gadd, head of research at Lighthouse Group, who flags up continuing European unrest, the potential for further quantitative easing by the Bank of England, and elections in France and the US as key issues.

"My view is that 'risk' assets have underperformed recently, so for investors with an appropriate risk profile and investment time horizon, I believe it is appropriate to focus on investments that produce a sustainable dividend yield," he says.

Mr Gadd suggests the Thames River Distribution Fund is worth a look.

"It aims to provide good, consistent income payments plus long-term preservation of capital," he says.

"Thames River believes that the best way to achieve an attractive and reliable income is to derive it from as many sources as possible."

It's also important not to dismiss areas that have had tough times, according to Patrick Connolly at AWD Chase de Vere, who highlights the Europe-ex UK sector, which has performed poorly because of the economic problems in the eurozone and investors unwilling to take risks.

"The uncertainty around how the eurozone crisis will be resolved has impacted on share prices around the world, but particularly on European equities," he explains.

"However, many European companies continue to make consistent profits, have large amounts of cash on their balance sheets and derive a large proportion of their revenue from outside of the eurozone.

"These companies have been oversold and could now represent very good value for investors."

Dennis Hall of Yellowtail Financial Planning predicts the UK stock market is likely to do okay over the coming year as it's isolated, to some extent at least, from the problems affecting other European nations.

He also suggests the commercial property sector might be attractive on the basis of being able to deliver good rental yields.

"Commodities may struggle a bit," Mr Hall adds. "China has already stockpiled what it needs and this could affect demand."

So where does this leave investors? Well, it's clear there are likely to be winners and losers in the year ahead, so it's important not to try to time the market – or put all your money into one area, argues Jason Witcombe, a director of Evolve Financial Planning.

"We can all have our opinions but no one has a crystal ball," he says. "I would encourage investors against spending too long agonising over which sector looks best.

"Instead, they should build a diversified buy-and-hold strategy and stick with it. Rebalance it every now and again by buying more of assets that have done less well and taking gains on ones that have turned a good profit."

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm today
News
people
News
Elton John and David Furnish exchange marriage vows
peopleSinger posts pictures of nuptials throughout the day
News
File: James Woods attends the 52nd New York Film Festival at Walter Reade Theater on September 27, 2014
peopleActor was tweeting in wake of NYPD police shooting
PROMOTED VIDEO
Sport
Martin Skrtel heads in the dramatic equaliser
SPORTLiverpool vs Arsenal match report: Bandaged Martin Skrtel heads home in the 97th-minute
Arts and Entertainment
The Lord of the Rings and The Hobbit director Peter Jackson with his star on the Hollywood Walk of Fame
film
News
people
News
Billie Whitelaw was best known for her close collaboration with playwright Samuel Beckett, here performing in a Beckett Trilogy at The Riverside Studios, Hammersmith
people'Omen' star was best known for stage work with Samuel Beckett
Arts and Entertainment
Mark Wright has won The Apprentice 2014
tvThe Apprentice 2014 final
News
i100
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Trainee Recruitment Consultant - LONDON

    £20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

    SThree: Graduate Recruitment Consultant

    £20000 - £25000 per annum + OTE £35000: SThree: SThree are a global FTSE 250 b...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £35K - £45K: SThree: SThree Group have been we...

    Day In a Page

    Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

    Clocks, rifles, swords, frogmen’s uniforms

    Surrounded by high-rise flats is a little house filled with Lebanon’s history
    Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

    Four months after the bombardment, Gaza’s wounds are yet to heal

    Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
    Gastric surgery: Is it really the answer to the UK's obesity epidemic?

    Is gastric surgery really the answer to the UK's obesity epidemic?

    Critics argue that it’s crazy to operate on healthy people just to stop them eating
    Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

    Homeless Veterans appeal: Christmas charity auction

    Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
    Pantomime rings the changes to welcome autistic theatre-goers

    Autism-friendly theatre

    Pantomime leads the pack in quest to welcome all
    The week Hollywood got scared and had to grow up a bit

    The week Hollywood got scared and had to grow up a bit

    Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

    Panto dames: before and after

    From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
    Thirties murder mystery novel is surprise runaway Christmas hit

    Thirties murder mystery novel is surprise runaway Christmas hit

    Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
    Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

    Anne-Marie Huby: 'Charities deserve the best'

    Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
    The botanist who hunts for giant trees at Kew Gardens

    The man who hunts giants

    A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
    The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

    The 12 ways of Christmas

    We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
    Birdwatching men have a lot in common with their feathered friends, new study shows

    The male exhibits strange behaviour

    A new study shows that birdwatching men have a lot in common with their feathered friends...
    Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

    Famous diaries: Christmas week in history

    Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
    From noble to narky, the fall of the open letter

    From noble to narky, the fall of the open letter

    The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
    A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

    A Christmas ghost story by Alison Moore

    The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'