The high inflation rates that swept the globe in 2021 have impacted the returns of funds across the board. Some flourished as higher prices drove asset values up while others made losses over the past year.
Political insecurity, especially in the emerging markets also had a negative push on the overall performance of sectors in 2021.
Here, Trustnet looks at the best and worst performing funds of the year and their sectors.
Top funds
Commodity and natural resources funds performed the best in 2021, with the iShares Oil and Gas Exploration and Production fund taking the lead, up 74.4%.
The fund which runs $225.4m in assets under management outperformed its sector by 46.7 percentage points for the year.
Performance of fund vs sector
Source: FE Analytics
Runners up, iShares S&P 500 Energy Sector fund, S&P US Energy Select Sector fund and MSCI USA Energy fund all rose by more than 50%.
Overall, nine of the top 10 funds in 2021 invested in energy, which had a booming year as oil and gas prices rose as the world reopened following lockdowns and demand for goods rocketed, increasing the need for transportation.
Many analysts have predicted that price rises will continue into the year, with Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown noting that the global supply chain hold ups that have driven inflation, “don’t look set to ease up significantly”.
The only non-energy fund on the list was the Alquity Indian Subcontinent fund, which made 44.4% as the India market rose despite high Covid rates.
Bottom funds
The three worst funds of 2021 were all based in China with Invesco’s PRC Equity fund the biggest laggard, declining by 26.6%, while the Star China Equity and China Consumer funds also went down 25% and 24% respectively.
Performance of funds vs sector
Source: FE Analytics
Government policy aimed to reduce the wealth gap in Chinese society increased market volatility in 2021, with foreign investors withdrawing as a result.
Restrictions placed on technology companies had a particularly big impact, as listed tech companies lost more than $1trn (£740bn) in combined market capitalisation between February and August last year, according to Oscar Yang, co-manager of the Asia Environmental strategy at Impax.
The Charteris Gold and Precious Metals fund also performed poorly in 2021 as the price of silver and gold declined.
With inflation on the rise, the value of precious metals may go up again as investors purchase commodities for security, but last year the metals struggled as investors turned optimistic that the worst of the pandemic was behind them.
In a year where environmental, social and governance (ESG) funds recorded huge inflows, iShares Global Clean Energy fund was down 21.6% after some of its largest holdings dropped.
Enphase Energy, which makes up 10.4% of the fund’s total assets was down 6.4% in the past year and its second largest holding, Vestas Wind Systems went down 32.6% as renewable energy companies proved not to be immune from supply chain issues and rising commodity prices.
Top Sectors
The India/Indian subcontinent was the leading sector in 2021, up 28.3% across the year despite a crippling second wave of Covid. The market had a poor 2020 but investors were heartened by the accommodative monetary policy and its position as the world’s leading manufacturer of Covid vaccines.
Following closely behind was the North American sector, which rose by 25.5% in 2021. The US economy increased at a much faster rate than anticipated last year, with GDP growth peaking at 6.7% in the second quarter, although this slowed as the year went on.
The commodity and natural resources sector also did well, increasing 24% last year as investors put their money into assets that would benefit from rising inflation.
Other strong performers include the UK Smaller and Global Equity Income sectors, which increased by 22.9% and 18.7% respectively. Both were unloved areas of the market in 2020 that rebounded last year as investors looked to cash in on bargains.
Bottom Sectors
Latin America was the worst performing sector, down 11.5% in 2021 as economic activity was stunted by some of the highest levels of covid cases in the world and numerous government scandals.
The China/Greater China sector was the second worst performer, down 10.6% in the past year as unpredictable legislation damaged the outlook for Chinese businesses.
Bond markets also made up many of the worst performing sectors last year, especially in Europe.
The European Mixed Bond and European Government Bonds sectors were both down by 8.9% and 8.5% as high inflation suggested central banks could look to raise rates, or reduce their monetary stimulus.