Almost 20 per cent of funds that invest in international equities have so far struggled to deliver top quartile performance during 2018 despite having established long track records for the prior five-year period, FE Trustnet research shows.
Having previously looked at the UK funds that got off to a bad start in 2018 having performed well during the previous five-year period, FE Trustnet decided to look at strategies investing beyond the UK’s borders.
The region where the most long-term performers have struggled this year is Japan, where 40 per cent of the funds in the IA Japan sector that were in the top quartile for the five years to the end of 2017 have found themselves in the bottom quartile during the first five months of the year.
In the IA Global Emerging Markets sector, 32 per cent of the long-term performers are bottom quartile today, whilst in both the IA China and the Europe Including UK sectors just 25 per cent of top quartile performers are behind their peers so far.
The most resilient sectors this year are IA Japanese Smaller Companies and IA European Smaller Companies, with none of their top long-term funds bottom quartile in 2018.
For this article, we filtered the entire Investment Association universe to find out which international equity funds have been in their sector’s bottom quartile during the first five months of 2018 but were top quartile during the five years to end-2017.
Although it is worth bearing in mind that there are still seven months of the year remaining and some may yet turn the tables.
Source: FE Analytics
As the above table shows, most of the top long-term international equity funds that are bottom quartile today have lost investors’ money, with only 16 per cent having delivered a positive return so far in 2018.
The $7.1bn Comgest Growth Emerging Markets – overseen by Charles Biderman, David Raper, Emil Wolter and Wojciech Stanislawski – is the worst performer with a 7.97 per cent loss for the year to 31 May 2018.
Over the five years to end-2017, though, the fund delivered a 73.05 per cent total return compared with a 45.08 per cent gain for the average fund in the IA Global Emerging sector and a 48.67 per cent return for the MSCI Emerging Markets index.
Another four emerging markets funds, all of them four and five FE Crown-rated and with a long-term investment perspective, are also bottom quartile in 2018: Newton Global Emerging Markets, Jupiter Global Emerging Markets, Baillie Gifford Emerging Markets Leading Companies and Invesco Perpetual Global Emerging Markets.
However, it is worth noting that the IA Global Emerging Markets sector has had a weak start to the year, with the average fund falling by 2.68 per cent during the first five months of 2018.
Another fund with negative numbers is Chris Hiorn’s EdenTree Amity European, which is down by 4.23 per cent compared with a 0.40 per cent loss for the IA Europe excluding UK sector during the first five months of 2018.
The four FE Crown-rated fund had strong performance figures over the five-year period prior to 2018, delivering a 101.72 per cent total return compared with a gain of 86.42 per cent for the sector average.
Other long-term top performing European equity funds making it onto our list of 2018 strugglers include FE Alpha Manager Robrecht Wouters’ JOHCM European Select Value, the five FE Crown-rated Artemis European Growth or the £1.9bn BlackRock Continental European Income.
Performance of funds until end of May
Source: FE Analytics
As mentioned previously, a significant number of top-performing funds in the IA japan sector have struggled in 2018 including: Janus Henderson Japan Opportunities, and the five FE-Crown rated M&G Japan, LF Morant Wright Japan and LF Morant Wright Nippon Yield funds.
Both LF Morant Wright Japan and LF Morant Wright Nippon Yield are down by 2.40 per cent and 2.46 per cent respectively in 2018.
However, over the five years to end-2017 both LF Morant Wright Japan and LF Morant Wright Nippon Yield delivered respective gains of 135.76 per cent and 132.40 per cent compared with a 113.01 per return for the IA Japan sector and a gain of 115.78 per cent for the TSE TOPIX index.
Data showed one global equity income fund and five global equity funds have also got off to poor starts in 2018 despite being top quartile over the previous five-year period with the $3.0bn Dodge & Cox Global Stock and the €2.9bn Robeco BP Global Premium Equities the biggest ones from their sector.
Despite being down 2.27 per cent in 2018, over the five years to end-2017, Dodge & Cox Global Stock delivered a 121.09 per cent return compared with an 88.28 per cent gain for the IA global sector and a 108.37 per cent gain for the MSCI World index.
The fund aims to build a portfolio of global business franchises where current market valuations do not reflect the long-term opportunities and is currently included in FE Invest’s Approved list.
The FE Invest team noted: “Although the fund’s activeness is relatively low, the valuation-led approach differentiates the fund from most of its global equity peers.
“The fund’s portfolio construction has been designed so that stockpicking – rather than style or industry bets – is the main driver of performance relative to the benchmark, with the team currently positive on a few UK and European banks.”
Another Dodge & Cox fund that is bottom quartile today – although having delivered positive numbers – is the Dodge & Cox US Stock, from the IA North America sector. With a 154.68 per cent gain, the fund has posted the highest returns over the five-year period.
Performance of funds over 5yrs
Source: FE Analytics
Schroder US Mid Cap, Threadneedle American Smaller Companies, Baillie Gifford Greater China and M&G Japan are also among the long-term performers experiencing a shaky start to 2018.