Just two funds of last year’s top five performers are in positive territory so far in 2017, as markets shook off the so-called ‘Trump Bump’ and remained cautious as the end of ultra-loose monetary policy nears.
In some ways 2017 has been as challenging for investors to predict as 2016.
While markets greeted the election of Donald Trump towards the end of last year with enthusiasm, difficulties in enacting some of his policy proposals have posed questions about how much he will be able to achieve in reforming US taxation and removing onerous regulation.
With investors anticipating the removal of quantitative easing measures and interest rate hikes, some economists have questioned whether high valuations are sustainable longer term.
As such, FE Trustnet has revisited the five best performing funds of 2016 below to see how they have performed so far in 2017.
HC Charteris Gold & Precious Metals
The best performer of 2016 was the £13.1m HC Charteris Gold & Precious Metals fund, which rose by an extremely impressive 133.95 per cent.
The fund, managed by Ian Williams, Mark Williams and Nick Taylor, invests in stocks whose core business is in the mining, refining, production and marketing of gold or precious metals.
The majority of the portfolio will be invested directly in blue-chip mining companies with market capitalisation in excess of $500m, although a further 25 per cent is targeted at small- and mid-cap gold miners.
However, it has failed to repeat this performance this year despite positive movement in both gold and silver prices in 2017.
So far this year, the fund has fallen to a 6.01 per cent loss compared with a 10.19 per cent rise in the Nasdaq Philadelphia Stock Exchange Gold/Silver index.
Performance of fund vs benchmark in 2017
Source: FE Analytics
The fund has struggled this year due to underperformance by silver mining equities, according to recent factsheets. As at the end of July, the fund’s metal exposure split was 66/34 in favour of silver.
Indeed, companies with exposure to silver miners are well represented among the fund’s largest holdings, including top position MAG Silver, the Canadian exploration and development company, at 7.9 per cent of the portfolio.
While the fund invests globally, it does not invest in South Africa, where the FTSE South Africa Mining sector has risen by 12.49 per cent.
Pictet Russian Equities
Last year the Pictet Russian Equities rose by 107.31 per cent as markets became more bullish about the prospects for the country after years of sanctions took a toll on the economy.
The $408.6m, three FE Crown-rated fund is overseen by co-managers Hugo Bain, Klaus Bockstaller and Christopher Bannon, who aim to seek out long-term value opportunities.
However, the fund has fallen by 1.19 per cent this year although it has outperformed the MSCI Russia 10/40 benchmark’s 6.73 per cent loss. This index measures the large- and mid-cap segments of the Russian market and represents 85 per cent of the free float-adjusted market capitalisation in Russia.
Performance of fund vs benchmark in 2017
Source: FE Analytics
“Russian equities remain under-owned and continue to trade at distressed levels,” the managers noted in their most recent commentary.
“We believe that even without relief from sanctions being lifted, the geopolitical risk premium is favourable for Russian equity prices and, as such, a high premium is already factored into prices.
“We hope that at some point people will factor out the noise surrounding Russia and refocus on economic and corporate performance in the country.
“On the corporate side, most of the Russian companies we meet have strong balance sheets. We believe that with oil prices in the $40-60/barrel range the Russian economy has troughed, and 2017 will see a return to economic growth, inflation will approach the central bank target and monetary easing will continue.”
However, the managers warn of “value traps” in the Russian market and are currently underweight the energy and materials sectors, sticking instead with overweight positions in consumer, telecoms, real estate and industrials stocks.
MFM Junior Gold
Returning to precious metals, MFM Junior Gold was one of three funds delivering a total return of more than 100 per cent in 2016.
The £13.1m, four crown-rated fund is managed by Angelos Damaskos and invests in small- and medium-sized companies specialising in identifying, developing an extracting gold, the so-called ‘junior’ part of the sector.
Like the HC Charteris fund, MFM Junior Gold had a strong 2016 recording a 103.99 per cent gain over the full-year.
However, unlike its peer, the fund has remained in positive territory so far this year, with a 4.49 per cent gain for 2017.
Performance of fund vs benchmark in 2017
Source: FE Analytics
In his most recent fund factsheet, commodities specialist Damaskos highlighted the recent growth in bullion holdings, which have helped to push up prices for precious metals traditionally viewed as ‘safe haven’ assets.
“The growth in bullion holdings is justified as geopolitical risks appear to have risen, with Iran firing missiles into Syria, Qatar facing joint political action from its neighbours and Russia continuing its arguments with the US, not to mention North Korea’s nuclear missile threat,” he wrote.
“Gold and silver are still perceived as an insurance against the unexpected while the short-term price action is dictated by momentum driven, sentiment gauging, algorithmic driven fund flows.”
Indeed, Damaskos also noted that current gold equities weakness could provide an opportunity to increase positions in anticipation of a rise in precious metals prices.
HSBC GIF Russia Equity
Russian funds were among some of the best performers last year as investor sentiment changed following the election of Donald Trump as US president towards the end of 2016.
The $265.8m HSBC GIF Russia Equity fund, managed by Douglas Helfer, was up by 93.34 per cent last year, yet in 2017 it has sunk to a 3.59 per cent loss.
In its most recent monthly report to July, the manager noted that it remained “constructive” on Russian equities, while economic activity pointed to a marked improvement in a variety of areas in the Russian economy.
“We expect company fundamentals to improve as Russia returns to growth,” he noted. “Valuations remain at the lower end of the 10-year trading range and may offer an attractive entry point.
“Consensus now expects earnings growth of 18 per cent and a dividend yield of 6.2 per cent in 2017. This could provide some optimism and support for the Russian equity market.”
Helfer added: “The market remains sensitive to global risk appetite, including the oil price and domestic economic growth factors.”
BNY Mellon Brazil Equity
The final fund under examination is BNY Mellon Brazil Equity, which rounded out last year’s top five performers with a 91.14 per cent gain.
The $84.3m fund is managed by Rogerio Poppe and targets long-term capital growth through investment in a portfolio of Brazilian equities.
Although it has not been able to repeat last year’s returns year-to-date, the fund has returned an impressive 14.56 per cent: the best performer of last year’s top five.
Performance of fund vs benchmark in 2017
Source: FE Analytics
The Brazilian market has been buoyed more recently as president Michel Temer avoided corruption charges following a vote in the national congress, suggesting that he may be able to plough ahead with reforms aimed at bolstering the economy.
“We see a somewhat more positive outlook for the local economy; we do not anticipate political disruption in the near term, and we think local activity should be positively influenced by the lower cost of credit in the coming months,” it noted.
“Furthermore, we believe companies could start to show some signs of volume expansion after the past two years of compression given recent productivity gains.”