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A fine performance By Jeff Salway
This year has seen uncertainty return to the stockmarket. Disruption in May turned out to be more of a correction than a slump and markets duly recovered. In fact, investors that have stood firm have been rewarded Staying in for the long-term is a key part of successful investing - a fact that has been borne out by Fidelity. The fund manager found that over a 25-year period, taking 190 possible different 10-year monthly starting points, someone who remained invested for 10 years or more would never have made an overall loss on a UK or global portfolio. By contrast, those who sold up after a year would have lost out. For this reason, the Moneywise fund awards are designed to highlight funds that best reward those investors who keep their nerve. The funds here have been selected not only on the basis of their outstanding performance, but also on their ability to consistently produce returns, both when the going is good and when it gets tough. UK sector Funds investing primarily in UK companies remain the core option for most British. Over 10 years to the end of August, the UK Smaller Companies and UK Equity Income sectors produced the third and fourth best average fund performance of all investment sectors. The most popular remains the UK Equity Income sector. Over 10 years, the average fund has grown over 100%, while in the five-year period over which we've judged; the top 20 have all grown by more than 50%. Our winner, the Rathbone Income fund run by Carl Stick, has returned 78% in five years. But it's the combination of consistent performance and an ability to minimise losses in difficult markets that makes it really stand out. The fund hasn't been at its best over the last year, according to Meera Patel, senior analyst at Hargreaves Lansdown, but its long-term record is impressive. "Carl is very different to other managers in the sector. He takes different angles and looks at longer-term themes. For example, he's been investing in social housing-related stocks - which others haven't," Patel says. The UK All Companies sector has been less popular with investors. It's difficult to compare fund performance in this sector because the funds, and where they invest, vary widely. Our top fund here, the Schroder Recovery, looks for companies that are likely to grow after suffering setbacks. It has grown by over 87% in five years, compared with a sector average of 32%. Top performance The Smaller Companies sector has fared somewhat better, with four of our top five growing more than 100% over the last five years. According to Lipper, the average UK Smaller Companies fund has returned around 50% over five years. The Old Mutual UK Select Smaller Companies fund is our winner. It has returned 152% in just five years by investing in little-known companies with potential for growth. Manager Daniel Nickols looks at the parts of the economy that he thinks will do well and then identifies the best growth opportunities within those areas. By contrast, the UK Corporate Bond sector has had a mixed time of late, with the average fund growing less than 1% in the year to the end of August. The lower volatility and risk of corporate bonds has become attractive to some investors again, following a slight loss of confidence in equities. However, this is being offset by lingering worries over inflation, in the face of rising oil and commodities prices. Our winner, the Invesco Perpetual Corporate Bond fund, is the only fund to have taken the spoils for a second consecutive year. The Invesco fund combines top ratings for preservation and consistency with a return of 34% over five years, underlining why it's such a favourite with investors who have now invested £1.7 billion into the fund. Europe The Europe excluding UK sector is an enigmatic beast. Many UK investors ignore Europe, but the average fund in the sector has performed strongly over three, five and 10 years. There's a perception that economies in mainland Europe are struggling, but conditions are good. The potential of the sector is borne out by the 106.6% growth generated by our winner, the Artemis European Growth fund, along with top scores for preservation of capital and consistency. The fund invests over 30% in France and Germany, where the continued economic recovery is driving the European resurgence. North America Of all the sectors featured here, North America (which is dominated by the US but also includes Canada) has provided the lowest returns over the five-year period that we have focused on. According to the Investment Management Association, the average North America fund has lost 18.8% in the last five years, 3% over three years and 1.7% in the last year. Asia Pacific excluding Japan This sector has benefited from many of the same developments as emerging markets funds - namely, the economic emergence of China. It's a particularly diverse sector, however, with funds investing in countries ranging from China and Taiwan to New Zealand and Australia. Other funds focus only on certain areas, such as South East Asia. Over five years, only Global Emerging Markets has beaten this sector in terms of average fund performance, and four of our top five grew by over 100% in that period. The pick of the bunch - by just over 1% - is the New Star Pacific Growth fund, with 122.47% growth. It invests almost a third of its assets in China and Hong Kong, and around a fifth in Korea, far more than the average fund in the sector. Areas such as Korea and Taiwan in particular are benefiting from the increased demand from China. Global emerging markets Emerging Markets is a new category for our awards, which has been introduced to reflect the demand for funds investing in fast-developing regions. The growth of economies such as China, India and Brazil has alerted investors to the potential of emerging market countries, and funds investing in the region have become more popular as a result. There have been blips in performance, but Patel says this is to be expected. "There will always be some volatility every now and again, but nothing serious - if anything, it's a healthy thing."
Nevertheless, this is the only sector in which we had to be flexible with our criteria to produce our top five funds. This is because only three of the top 20 funds scored well enough on consistency and capital preservation, illustrating just how risky this sector is. Our winner, the Aberdeen Emerging Markets fund, however, has grown by 157.05%, while earning good ratings for its consistency and ability to preserve investors' money. Funds that offer this kind of balance - performance allied to security - are rare. Global growth A number of factors have raised question marks over the global economy of late. One of these is the rise in oil prices, which has made fund managers nervous.
The Global Growth sector has been one of the least impressive over the last five years, which makes it especially important to pick the right fund, as there's a big gap between the performance of the best and the worst. The M&G Global Basics fund, our Global Growth winner, has performed increasingly well over the decade since its launch. Over five years, it produced the best growth by far (125%), while also ranking in the top category for looking after investors' money. Its success has been largely down to its focus on 'basic' industries. Specialist In stark contrast to North America - in terms of investment growth - is the specialist sector. A new category in our awards, this arena has become hard to ignore, despite its volatility, because of the outperformance of the average fund (74% over five years). It also contains funds attracting increasing interest from investors - from biotech and healthcare to property and natural resources.
One of the latter funds, JPM Natural Resources, takes the award. It has achieved outstanding growth of 354.24% over five years. It's also one of the few specialist funds to be top scored by Lipper for its consistency - an impressive feat in a volatile sector, according to Juliet Schooling. "Natural resources is a volatile niche area - very specialist - but the JPM fund has a good long-term track record and a good balance between mining and energy stocks," she says.
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