Loss-making funds were something of a rarity in 2019 as more than 95 per cent of the strategies in the Investment Association universe made a positive return.
A more benign year for markets began to emerge part-way through the year as the Federal Reserve reversed course on the rate-hiking programme that damaged confidence in 2018.
As such, most funds recorded positive returns.
Nevertheless, there were still some that fell to losses as specialist strategies faced some more idiosyncratic challenges.
Among these were some that delivered consistent annual gains over the medium-to-long term – for the purposes of this article defined as five years – before making a loss in 2019.
Source: FE Analytics
As the chart above shows, there were just six funds that recorded consecutive positive annual returns in the five years prior to a negative 2019.
It’s interesting to note that there were four property strategies among the six that made a loss for the first time since 2014.
As previously reported, the UK property sector was struck by considerable outflows of £1.4bn during the first 10 months of the year, following investor concerns surrounding liquidity, Brexit and performance.
After five calendar years of positive annual performance, BMO UK Property recorded a loss of 5.96 per cent, the largest of the six funds.
The £509.1m fund has been overseen by Guy Glover since June 2010 and in the five years prior to 2019 – which included 2016 when several UK property funds were gated following the referendum – made a total return of 30.33 per cent.
Performance of BMO UK Property 2014-2019
Source: FE Analytics
Writing towards the end of the year, Glover highlighted the fund’s defensive approach and large cash holdings. Now the UK political situation has more clarity following the decisive general election result in December, the manager said he will look to deploy some of the fund’s cash.
“We remain positive for a bounce-back in the market once a resolution on Brexit is reached and there is more certainty in the property market and the wider economy, encouraging greater investment activity,” he wrote. “UK property offers an attractive income premium for investors in a world starved of yield, which is set to continue with the increased likelihood of a ‘lower for longer’ outlook for bond yields.”
The £1.5bn Hermes Property fund – managed by Chris Matthew – was the largest on our list to make a loss in 2019 after consistently positive annual returns between 2014 and 2018. The fund from the IA Unclassified sector was down by 0.58 per cent last year.
However, it was the £413m Royal London Property fund – overseen by Gareth Dickenson and Andrew Johnstone – that made the smallest loss from our study, falling by just 0.08 per cent.
The last property fund on our list is the Canlife UK Property Jersey – an offshore UK commercial ‘bricks & mortar’ fund managed by Michael White – which made a loss of 3.63 per cent last year.
Beyond UK property, there were two other strategies that slipped to losses last year: Stewart Investors Indian Subcontinent Sustainability and Allianz Renminbi Fixed Income.
The first fund – Stewart Investors Indian Subcontinent Sustainability – is perhaps better known, managed by FE fundinfo Alpha Manager David Gait and Sashi Reddy.
The £279.5m fund invests in listed companies based in or with significant operations in India, Pakistan, Sri Lanka or Bangladesh. Particular consideration is given to those poised to benefit from or contribute to sustainable development in the companies they operate in.
Performance of Stewart Investors Indian Subcontinent Sustainability 2014-2019
Source: FE Analytics
The Indian equity market had a more muted year than some of its peers, as the MSCI India rose by just 3.42 per cent compared with a 13.86 per cent gain for the broad MSCI Emerging Markets index.
Last year, the specialist strategy recorded a 3.18 per cent loss. Prior to 2019, however, Stewart Investors Indian Subcontinent Sustainability made a cumulative five-year total return of 140.71 per cent, with impressive annual returns of 52.28 per cent in 2014 and 21.27 per cent in 2016.
Performance of Allianz Renminbi Fixed Income 2014-2019
Source: FE Analytics
The final entrant in our study is the $21.6m Allianz Renminbi Fixed Income fund, managed by Gareth Ong since February 2019. After making annual profits since 2013, the Chinese bond fund posted a loss of 1 per cent in 2019.
Most of the fund is held in Chinese government bonds, with just a small portion held invested in corporate debt.
It was a mixed year for the sector as Chinese bonds were added to global benchmarks, opening up the market to new investors.
However, Chinese sovereign bonds sold off towards the end of the year and the need to refinance maturing debt is likely to add further supply pressure, as investors continue to second guess authorities’ intentions to support the economy and the potential for further escalation in the US-China trade war.