The best and worst performing funds of 2021

So, how did you do this year?

(AP)

Many investors will be celebrating bumper returns at the end of 2021 – despite the ongoing battle with Covid-19, global supply problems and widespread economic uncertainty.

The best-performing sectors have made average returns of more than 20 per cent since the start of this year, according to data compiled exclusively for The Independent by Morningstar.

But the figures also reveal other sectors have suffered double digit losses in 2021 due to mounting political problems and a lack of investor interest.

Here, then, we take a look at the biggest sector winners and losers over another remarkable year.

Big picture

Of the 51 IA sectors analysed, 34 have posted positive average returns in the first 11 months of this year, with the remaining 17 mired in negative territory.

The 13 best-performing sectors have made double-digit returns, helped by the global economy starting to open up after the sweeping Covid-19 lockdowns.

However, it remains to be seen whether the Omicron variant that has emerged in recent weeks will have a negative impact on overall fund returns during the final weeks of the year.

Sector winners

The biggest winner so far in 2021 has been the IA India/Indian Subcontinent sector with a year-to-date return of 26 per cent, according to Morningstar data to the end of November 2021.

It’s followed by IA North America with a 23.2 per cent return and the IA Technology and Technology Innovations sector, which weighed in with a 17.6 per cent increase.

IA Global, IA European Smaller Companies, IA UK Smaller Companies, and IA Financials and Financial Innovation have also each delivered decent returns of around 15 per cent.

India

This sector has been the stand-out performer of the year, having been through a torrid 2020, according to Darius McDermott, managing director of FundCalibre, the fund ratings agency.

He pointed out that 2021 had been better for the country, with good growth, cheaper valuations and a gradual improvement in the Covid-19 situation.

“Last year was very strong for China and very weak for India, but this has reversed in 2021,” he said. “If you’d moved into China in 2020 and India this year then you’d have called it perfectly.”

The outlook for India is also promising, according to research by the Organisation for Economic Co-operation and Development.

“After the second infection wave that peaked in May, the recovery is gaining momentum and GDP is projected to grow at 9.4 per cent in fiscal year 2021-22 before reverting to 8.1 per cent in 2022-23 and 5.5 per cent in 2023-24,” it stated.

Best and worst performing funds

As far as individual funds are concerned, Morningstar’s list of stand-out performers is dominated by those focused on commodities and natural resources.

Perhaps unsurprisingly given the energy price hikes we have seen, the top funds in this area have delivered returns of more than 50 per cent during the first 11 months of the year.

The top fund has been iShares Oil & Gas Exploration & Production UCITS ETF, which is an exchange traded fund, that has risen by almost 70 per cent since the start of 2021.

Andy Merricks, manager of the EF 8AM Focused Fund, attributed the strong returns by energy-focused funds to rising oil and gas prices this year.

“As the energy prices rise, so do the stocks within that sector,” he said. “It’s been down to a mixture of supply chain issues, inflation and recovery.”

However, it’s not something he believes is sustainable over the longer-term, with the price of oil currently around the $70-a-barrel level.

“I can’t imagine for a second that it’s going to be repeated year-on-year,” he said. “Traditional oil and gas companies have become unpopular with the clamour for new energy so this was just a bounce as they’re still the most commonly used.”

The worst performing funds, meanwhile, are down almost 30 per cent this year, with those focused on Brazil and Turkey among the most badly hit.

Sector losers

As far as the worst-performing funds are concerned, IA Latin America has lost 14.6 per cent since the start of the year, according to the Morningstar data to the end of November.

This is almost double the loss endured by the next worst-performing sector, IA China/Greater China, which is down 7.8% over the same period.

These two are followed by a number of fixed income sectors, with IA Global Emerging Market Bond – Local Currency down 7.7 per cent and IA EUR Mixed Bond slipping 6 per cent during 2021.

Latin America

It’s certainly been a rough year for investors in Latin America and this is a region where local expertise is essential, according to McDermott.

“It’s been a basket case,” he said. “This sector is the only one to have negative returns over one, three and five years on an annualised basis.”

McDermott said Brazil had endured one of the worst Covid experiences, pointing out that a lot of Latin American countries were poor and lacked the fiscal stimulus of developed markets.

“Latin America is a very high-risk area to invest in,” he said. “It’s always been super volatile and we prefer to have a global emerging market fund manager allocate to that region for us when they see really good companies.”