It paid to be bullish in 2013 according to data from FE Analytics, as the top of the sector tables have been dominated by higher risk funds.
Sentiment has gradually increased over the past 12 months as central bank liquidity and an improving economic backdrop have pushed investors into riskier assets. Therefore, it is not surprising to see that the top 10 performing IMA funds this year have been the ones that have been more aggressively positioned.
Best performing funds in 2013
Source: FE Analytics
The best performing open-ended fund this year has been the $11.3m Guinness Alternative Energy fund.
Though it lost more than 20 per cent in 2010, more than 40 per cent in 2011 and more than 15 per cent in 2012, it has topped the tables in 2013 with stellar returns of 67.42 per cent.
In contrast, the best performing portfolio in 2012 was Pictet Biotech, which returned 21 per cent that year.
Despite this year’s returns, Guinness Alternative Energy’s previous poor performance means it has still lost 12 per cent over rolling five year and five year periods.
This year was categorised by developed market equities vastly outperforming emerging markets and small caps beating their large cap rivals. This is shown by the fact that the three top performing sectors in 2013 have been the IMA North American Smaller Companies sector, IMA UK Smaller Companies sector and the IMA Japanese Smaller Companies.
As a result, the likes of star manager Bill Miller’s Legg Mason Capital Management fund – which invests in value lower-cap US equities – R&M UK Equity Smaller Companies and Unicorn UK Smaller Companies all feature on the list.
Unicorn UK Smaller Companies, which is headed up by Simon Moon, has been the best open-ended fund for risk-adjusted returns this year as it has the highest sharpe ratio – a measure which shows how effectively the fund compensates the investor for the risk taken – in the whole IMA universe.
Some of the other top performing funds for risk-adjusted returns include CF Miton UK Multi Cap Income, Schroder UK Smaller Companies and Fidelity UK Smaller Companies.
Biotechnology funds dominated the list of top performing funds in 2012 due to a flurry of M&A activity in the sector and biotech firms being called upon to provide new streams of revenue for pharmaceutical companies facing expiring patents.
Though biotech portfolios have still performed well this year, the AXA Framlington Biotech fund is the only portfolio in the IMA universe to feature on the list of best performing funds in both 2012 and 2013.
Last year’s list was also littered with funds from the IMA UK All Companies sector. However, Hugh Sergeant’s R&M UK Equity Long Term Recovery fund, with its returns of 55.09 per cent, is the only fund in the sector to make it on the list this year.
Japan has been one of the surprise packages of 2013. Positive rhetoric from Abe’s government and huge stimulus packages from the Bank of Japan have weakened the yen and pushed up equity markets.
Both Legg Mason Japan Equity and Invesco Perpetual Japanese Smaller Companies feature on the list of best performing funds this year as they have been exposed to areas of the market that have either benefitted from the increased investor risk appetite or the weakened currency.
Europe has also become increasingly popular with investors since Mario Draghi calmed the market by saying he would do “whatever it takes” to save the eurozone in 2012.
Low starting valuations and a stabilisation in the European economy have meant funds with a clear value or cyclical bias have topped the IMA Europe ex UK sector this year. The two top performing funds in the sector have been Adrian Bignell’s Invesco Perpetual European Opportunities fund and Stephanie Butcher’s Invesco Perpetual European Equity Income fund.
Performance of funds versus sector in 2013
Source: FE Analytics
Bignell has had a bias to economically sensitive stocks such as banks, while Butcher has had significant exposure to out of favour companies listed in the periphery.
Equity income has remained a popular asset class with investors and has performed well this year as yields from fixed income have been steadily increasing.
However, funds which shy away from the larger dividend paying stocks and instead look down the market cap for yield have been the stand out performers this year.
For instance, the top four performing funds in the IMA UK Equity Income sector have been Marlborough Multi Cap Income, CF Miton UK Multi Cap Income, PFS Chelverton UK Equity Income and Unicorn UK Income.
As mentioned earlier, 2013 has been a tough year for investors fixed income as swathes of bond-holders have been hit by capital losses as the market has expected a normalisation in central bank monetary policy.
Performance of indices over 1yr
Source: FE Analytics
This has been shown by the fact that the top performing funds in the multi asset sectors have been the ones that have maxed out their equity exposure, such as the five crown rated CF Odey Portfolio in the IMA Mixed Investment 40-85% sector and the five crown Kames Ethical Cautious fund in the IMA Mixed Investment 20%-60% sector.
Nevertheless, while bonds have had a difficult year, there have been a number of fixed income managers who have delivered a healthy return.
Kevin Doran’s Brown Shipley Sterling Bond fund has been the best performing portfolio in the IMA Sterling Corporate Bond sector with returns of 7.54 per cent, with Doran benefitting from a high exposure to the lower end of the credit market.
Falling commodity prices, a stronger dollar and slowing growth in emerging markets has meant funds in the IMA Asia Pacific ex Japan and IMA Global Emerging Markets sectors have largely struggled in 2013.
Performance of sectors in 2013
Source: FE Analytics
Despite those headwinds, some funds have managed to buck the trend. The most notable have been portfolios managed by Hermes.
Their Hermes Asia ex Japan fund has topped the IMA Asia Pacific ex Japan sector in 2013 with returns of 24.84 per cent and the Hermes Global Emerging Markets fund has been the second best performer in the IMA Global Emerging Markets sector with returns of 6.42 per cent.
Another point worth mentioning is that 2013 has been the first year that neither an Aberdeen or First State fund has been a top five performer in the IMA Global Emerging Markets sector since the financial crash.