The IA Specialist sector had the largest gap between the member that made the most money for investors in 2018 and the one that had the weakest year, data from FE Analytics shows.
Our research also found that there were sizeable differences in the winning and losing funds in the IA Global and IA Global Emerging Markets peer groups, while – as would be expected – the gap was narrowest among fixed income funds.
As highlighted on many occasions, issues such as the US-China trade dispute, higher interest rates from the Federal Reserve and confusion over Brexit meant that last year was a challenging one for active managers with most funds in the Investment Association universe failing to generate positive returns.
Against this backdrop, FE Trustnet reviewed the performance of every fund sector to see which displayed the largest difference in performance between the member that made the highest return and the one that suffered the lowest.
Performance of funds vs sector in 2018
Source: FE Analytics
In the IA Specialist sector, there was a 49.10 percentage point gap between GAM Star Alpha Technology and TC South River Gold and Precious Metals. The peer group is home to funds focused on a wide range of assets and strategies, which means there is often very large differences in outcomes.
GAM Star Alpha Technology made 20.24 per cent over the course of 2018, making the it the best performer from the entire Investment Association universe despite the tech-centred sell-off in the second half of the year.
Managed by Mark Hawtin since launch in 2010, it has a long/short equity approach (which means it is not eligible for the IA Technology & Telecommunications sector) and can capitalise on falling tech stocks as well as rising ones.
TC South River Gold and Precious Metals, on the other hand, was the Investment Association universe’s worst performer last year after losing 28.86 per cent.
As the table below shows, there was a 34.22 percentage point gap between the IA Global sector’s highest returning fund and its lowest.
Fidelity Global Health Care made 11.55 per cent in 2018, reflecting the fact that healthcare was the best performing sector of the global equity market after investors moved towards it for its defensive characteristics.
But Guinness Global Money Managers made the peer group’s worst return with its 22.67 per cent loss. The fund investors in asset management companies, which had a very tough year given the challenges and lacklustre returns of the wider market.
Source: FE Analytics
In third place is IA Global Emerging Markets, which had a 32.47 percentage point difference in returns. The sector had suffered over the course of 2018 as sentiment was dented by the US-China spat and slowing economic growth in China.
That said, Lazard Mena made a 7.63 per cent total return last year – the only member of the sector to be in positive territory. The Middle East & North African market held up well in 2018, although this was on the back of flows into relatively narrow strips of the market through foreign ownerships and passive inflows.
Comgest Growth Gem Promising Companies made the peer group’s lowest return with a 24.84 per cent fall. The fund is a high-conviction portfolio of quality-growth names, which underperformed the value style in 2018.
At the other end of the spectrum, there was just a 0.49 percentage point difference between IA Money Market members and a gap of 0.56 percentage points in the IA Short Term Money Market sector. These funds tend to make very similar returns, given the nature of their asset class.
There’s also less scope for the fixed income sectors to make wildly differing returns. The performance gap in the IA UK Gilts sector stood at 2.38 per cent, followed by IA UK Index Linked Gilts (2.62 percentage points) and IA Sterling Corporate Bond (4.5 percentage points).
The wide differences in the performance of individual funds in some of the equity sectors is often down to a member making a very high return or a fund losing lots of money. Most investors won’t own these outliers.
Source: FE Analytics
The table above smooths this out by comparing the return of the average top-quartile fund with the average return from the bottom quartile, giving a less polarised view of what happened last year.
There was a 14.95 percentage point gap in the IA Technology & Telecommunications sector.
Examples of top-quartile funds in this peer group include Neptune Global Technology, Polar Capital Global Technology and GAM Star Technology; Close FTSE techMARK, T. Rowe Price Global Technology Equity and Pictet Robotics were in the bottom quartile.
As would be expected, the money market and bond sectors are also at the bottom of this revised list.