Fund tips for 2014: the results

Europe

We suggested Europe because a number of analysts and advisers felt that, even though markets had moved up following economic improvement, they had further to run - and valuations were still relatively cheap. Mergers and acquisitions were also returning.

We suggested two investment trusts - IC Top 100 Fund Jupiter European Opportunities (JEO) and European Investment Trust (EUT) - as they can be a good way to play an improving market. This is because you can benefit from a re-rating of both the underlying investments, and the investment trust's share price. In a rising market trusts can also do better because of their ability to take on debt.

Both funds beat FTSE World Europe Ex UK TR GBP Index over one year to 11 December, but Jupiter European Opportunities was the clear winner with more than 13 per cent. This trust is also well ahead of this index and the AIC sector average over three, five and 10 years. Jupiter European Opportunities has a good reputation and has historically been one of the best performers in its sector, although this time last year its one-year numbers were not so good. It has been run by Alexander Darwall since 2000.

Source: Morningstar as at 11 December 2014

Russia

We picked Russia as a contrarian bet because the equity market was cheap, generally unaffected by quantitative easing considerations, and it seemed that equities in emerging markets had good prospects. Russia looked good because of its robust sovereign balance sheet supported by high oil prices, as well as attractive and rapidly growing companies in the consumer sector.

This was, of course, before tensions between Russia and the west over Ukraine broke out, and more recently the fall in the oil price and then the rouble. Consequently, JPMorgan Russian Securities (JRS) is the worst performer in our selection. It has also underperformed its benchmark MSCI Russia 10-40 NR USD over the year to 11 December, as well as over three and five years.

We picked it because it was on a wide discount to NAV of more than 13 per cent, and if the Russian market had improved investors could have benefited from both a re-rating of the trust's investments and its share price. This time last year its performance figures were better, and it held consumer discretionary companies which are not represented in its benchmark but could benefit from consumer spending growth. It was also underweight commodities relative to its benchmark.

Source: Morningstar as at 11 December 2014

Japan

We suggested Japan because investors were moving back into this area and looked as though they would invest more in 2014. What's more, corporate earnings looked encouraging and the economy was responding to the stimulatory monetary policy environment.

Commentators also thought that a change in the equity asset allocation mix by the Government Pension Investment Fund (the world's largest pension fund) might stimulate the market further. And that a further boost might come from Nippon Individual Savings Accounts, which launched in January 2014, as these could encourage Japanese private investors to invest in shares.

Over the year to 11 December Japanese markets have not performed very strongly, but one of our suggestions, IC Top 100 Fund GLG Japan Core Alpha (IE00B665M716), beat its benchmark, the Topix index, by a considerable amount, delivering more than 12 per cent against 2 per cent. This particular share class benefits from having a Sterling hedge, which mitigates Yen weakness against Sterling - a reason why we picked it.

We also suggested a passive fund - iShares MSCI Japan Monthly GBP Hedged ETF (IJPH) - which did even better. Over the year to 11 December it was well ahead of the unhedged MSCI Japan Index, and also ahead of the index it tracks - MSCI Japan 100% hedged to GBP Index. This was our second best performing fund.

Source: Morningstar as at 11 December 2014

China/Greater China

In the second half of 2013 China looked promising due to an improvement in economic data, a delay in US tapering and reforms designed to help the Chinese economy move from being a strong manufacturing base with export advantages to having a greater reliance on domestic consumption and services.

We suggested First State Greater China Growth Fund (GB0033874107), which had a good allocation to financials, technology and consumer staples. This has underperformed its sector average over the year to 11 December and its benchmark, MSCI Golden Dragon, but beats them over three, five and 10 years. The problem with this long-term strong performer is that it has soft closed - it applies a heavy initial charge.

So we also suggested JPMorgan Chinese Investment Trust (JMC), which beats MSCI Golden Dragon Index over one, three and 10 years, but underperforms it over five. We had suggested it because it was cheaper, trading on a wide 11.59 per cent discount, and had outperformed over one and five years.

Source: Morningstar as at 11 December 2014

Healthcare/biotech

2014 looked set to be a good year for healthcare with new drugs on the horizon, managers of companies in this sector placing shareholder needs higher up the agenda and rising obesity globally set to boost healthcare spending.

We suggested Worldwide Healthcare Trust (WWH), an IC Top 100 Fund. This had beaten its benchmark and, as well as striving for maximum growth via a diversified portfolio of pharmaceutical, biotechnology and healthcare company shares, also uses gearing and derivatives to mitigate risk and enhance capital returns.

Again, over the year to 11 December this investment trust is ahead of its benchmark, MSCI World Health Care Index, which it has also beaten over three, five and 10 years. Biotechnology & Healthcare investment trusts have generally done well - this was the best performing Association of Investment Companies (AIC) sector over the 11 months to 30 November 2014, and Worldwide Healthcare was the fifth best performing investment trust.

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Source: Morningstar as at 11 December 2014

UK recovery

We suggested UK recovery as a theme for 2014 as, at the end of last year, unemployment was dropping and UK-focused funds were some of the best performing in 2013 as many benefited from a surge in consumer spending.

We suggested PFS Chelverton UK Equity Income Fund (GB00B1FD6244), which invests in UK small and mid-cap equities, and Alternative Investment Market (Aim) shares, that provide a high initial dividend, progressive dividend payments and long-term capital appreciation. The fund had a good track record, while the superior growth prospects of smaller and medium-sized companies, coupled with a low interest rate environment, continued to be supportive for equity income stocks.

But PFS Chelverton UK Equity Income underperformed the FTSE All-Share and IMA UK Equity Income sector over the year to 11 December, with a negative return. However, its longer-term track record remains intact, with the fund beating both of these benchmarks by a considerable amount over three and five years, and it offers an attractive 12-month yield of 5.52 per cent.

Source: Morningstar as at 11 December 2014