Specialist tech funds have found themselves knocked off their spot at the very top of the Investment Association’s three-year performance tables during recent months, Trustnet research shows.
According to research by the Investment Association, the average holding period for an open-ended fund is three years. As such, a three-year track record has become increasingly important for investors, particularly as many advisers require this as a minimum for assessing performance.
However, three-year rankings are never set in stone and leadership can change as market conditions shift and strategies just celebrating their third anniversary enter the rankings.
With this in mind, Trustnet has ranked all the equity funds in the Association universe by their three-year returns and compared the current standing with how the rankings looked six months ago.
Ove the three years to the end of 2019, the seven best performers were all from the IA Technology & Telecommunications sector. As the table below shows, this has changed over the most recent three-year period.
Source: FE Analytics
While technology stocks remain the biggest drivers of returns over the past three years, broader funds with a bias towards the sector are firmly at the top of the three-year performance tables and more specialist strategies have slipped down slightly.
The best performing equity strategy over the past three years is the £4.1bn Baillie Gifford American fund with a return of 138.20 per cent, having been ranked in tenth place for the three years to 2019-end.
Baillie Gifford American is overseen by Gary Robinson, Tom Slater, Kirsty Gibson and Dave Bujnowski. It is one of four strategies in the top-25 for the growth-focused asset management house Baillie Gifford, including Baillie Gifford Long Term Global Growth Investment, Baillie Gifford Positive Change, and Baillie Gifford Global Discovery.
Another US fund worthy of note was the $4bn Morgan Stanley US Growth fund, which has made a 135.68 per cent gain over the past three years to become the second-best performing equity strategy. In the three years to the end of 2019, it was ranked 13th out of the 4,000 or so funds in the Investment Association universe.
US equities have continued to perform strongly despite the coronavirus sell-off in March, as the Federal Reserve and Congress pledged to support the economy through the crisis. It is also home to many of the large technology names that have led the market higher in recent years and feature heavily in many of the top-performing strategies.
The dominance of the US in global equity markets in recent years is reflected in the number of IA North America funds on the above list. If we widen it out to look at the 100 highest returning funds of the past three years, 29 come from this peer group; IA Global is the best represented on the wider list with 30 members, but most of these funds also have a bias towards the US market.
Mark Urquhart and Tom Slater’s Baillie Gifford Long Term Global Growth Investment is in third place; although a member of the IA Global sector, it has more than half of its portfolio in the US.
While pure technology funds no longer sit at the top of the performance table, there are still a significant number of these strategies found among the best performers over three years.
This includes the $5.1bn Polar Capital Global Technology overseen by Ben Rogoff and Nick Evans, which sat in the top spot at the end of 2019. It is in fifth place now.
The strategy has recently soft-closed to new subscriptions to protect existing investors after a strong period of performance, having made returns of 113.58 per cent over the past three years.
Other technology strategies among the top-25 include AXA Framlington Global Technology, passive fund L&G Global Technology Index Trust, Liontrust Global Technology, Herald Worldwide Technology, Fidelity Global Technology, and T. Rowe Price Global Technology Equity.
Aside from the dominance of US equities and tech, another notable theme in this research is the recent outperformance of gold funds, which had struggled until 2020.
Demand for the yellow metal surged in the opening half of 2020 as investors sought out areas of relative safety in the coronavirus crisis. During the first half of the year, the gold price (as represented by the Bloomberg Gold Sub index) shot up by 17.13 per cent – in US dollar terms – during the first half of the year.
Performance of index during H1 2020
Source: FE Analytics
This helped spur performance for the £1.3bn LF Ruffer Gold fund, a gold mining equities strategy managed by Paul Kennedy, which has returned 112.41 per cent during the three years to 30 June. It was ranked in 440th place for the three years to end-2019.
It was a similar story for the Ninety One Global Gold fund managed by George Cheveley, which found itself catapulted to 20th place (up from 437th) with a return of 87.10 per cent.
Outside of the top-25, other gold funds have made more dramatic jumps up the rankings with Quilter Investors Precious Metals Equity going from having the Investment Association’s 2,450th highest return to its 87th and BlackRock Gold & General rising from 2,230 place to 70th.
In addition to the above themes of US equities, tech stocks and gold, several relatively young funds have appeared at the very top of the three-year leaderboard as soon as they clocked up this track record.
The aforementioned Baillie Gifford Long Term Global Growth Investment fund is one, having launched in April 2017 and become the third highest returner over the past three years.
A specialist technology strategy, the £398.2m Smith & Williamson Artificial Intelligence fund – overseen by Chris Ford and Tim Day – is another. It invests in companies involved in the development of artificially intelligent systems or products and has returned 108.52 per cent over three years.
Baillie Gifford Positive Change, Brown Advisory US Sustainable Growth, AMP Capital Global Companies, Wellington Global Innovation and First State All China are examples of other funds that lacked three-year track records at the end of 2019 but are now among the Investment Association’s 100 highest returners over the past three years.
At the other end of the three-year performance table can be found a number of UK value strategies and global energy funds – although this was also the case for the three years to the end of 2019.
The value style has underperformed as the post-global financial crisis cycle continued to favour growth stocks, while UK equities have generally been out-of-favour since the EU referendum four years ago due to the uncertain political backdrop and lack of progress on Brexit.
Energy prices, meanwhile, have remained low in recent years as global growth has slowed and were put under further pressure this year as first relations between the US and Iran deteriorated and later as an oil price war was sparked by Russia and Saudi Arabia.