Spotlight on the best and worst of funds
Our list of winners and losers could help you make the right choice for your investment.
Saturday 10 March 2012
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.
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."
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."
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.
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
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
Sony hack: Angelina Jolie branded 'seriously out of her mind' in further embarrassing leaked email saga
Panic Saturday: 13 million Britons spend £1.2bn – while 13 million others across the country live in poverty unable to afford food
iJobs Money & Business
£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...
£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...
£20000 - £25000 per annum + OTE £35000: SThree: SThree are a global FTSE 250 b...
£20000 - £25000 per annum + OTE £35K - £45K: SThree: SThree Group have been we...
Day In a Page
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
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