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Fund tips for 2015: the results

We check in with the funds we tipped for 2015 to see how they fared
January 7, 2016

At the start of 2015 we highlighted four areas and themes we expected to deliver strong returns for the year. We homed in on Europe and Japan, both of which were set to receive a boost from government stimulus plans, and also highlighted Asia ex Japan and wealth preservation as themes for the year. 2015 was dramatic with a global stock market rout hitting most funds. But the funds we tipped still managed to return an average of 8 per cent over the year to 14 December 2015, far exceeding the FTSE 100, which fell by 2.2 per cent over that period. And between 8 January 2015, when we selected the funds, and 14 December 2015, the funds posted an average return of 7.8 per cent, beating the FTSE 100 by a large margin - the index fell 7.3 per cent - and trumping the FTSE All-Share which lost 4.7 per cent.

The strongest fund was RIT Capital Partners (RCP), designed to preserve wealth. It returned 15 per cent over one year, compared with just 4.7 per cent for the Association of Investment Companies (AIC) Global sector. Over three years the most impressive performer was low-cost exchange-traded fund iShares MSCI Japan GBP Hedged (IJPH), which returned almost double the unhedged MSCI Japan index, at 95.4 per cent.

 

Europe

At the start of the year we suggested Europe would be a good region to back. Advisers were confident that European equities would benefit from the large-scale quantitative easing (QE) programme unleashed by the European Central Bank (ECB) at the start of the year. In January the region still faced major hurdles, including snap elections in Greece and a potential default. But the bank's €1.1 trillion programme unveiled in January did boost asset prices and a nascent economic recovery appeared to take hold across Europe, with earnings, manufacturing data and credit conditions all ticking up.

Advisers were keen to hedge out the impact of any currency weakness triggered by a QE package, so we tipped JPMorgan Europe Dynamic (ex-UK) Fund GBP Hedged (GB00BCV7MM92). It performed well, maximising the benefits of the QE programme and European recovery by homing in on undervalued equities and under-recognised growth opportunities. The fund takes an active approach to stockpicking and conducting rigorous analysis.

The fund returned 9.9 per cent over one year, compared with 7.9 per cent for the FTSE Developed Europe ex-UK hedged index. Hedging out the euro weakness was a clear strength, with the open-ended Europe ex-UK Sector returning just 3.6 per cent in that timeframe. Compared with the hedged index, the FTSE Developed Europe ex-UK benchmark returned just over 1 per cent in a year, proving we made the right move.

Europe remains a good region to back for this year, according to advisers. Adrian Lowcock, head of investing at AXA Wealth, says: "The outlook for Europe remains positive. Business and consumer confidence is rising and economic PMI data has been resilient. While the euro has initially strengthened against other currencies it could reverse following last month's US interest rate rise, the first in nine years.

"European stocks continue to trade at a discount to their US peers, have superior earnings per share growth and benefit from lower interest rates. At these levels, the European stock market looks attractive for long-term investors."

 

Japan

Like Europe, Japanese equities looked well-positioned to benefit from a major government stimulus package at the start of the year. Since the election of Prime Minister Shinzo Abe in December 2012 the country's economy has been organised along his 'three arrows' of economic reform, based around fiscal stimulus, monetary easing and structural reform. In October, the stimulus part of the package was ramped up, and advisers felt progress was also being made towards improving corporate governance. In addition, Japan's pension fund, the largest in the world, was overhauled to purchase equities for the first time, so it looked to be a good year for Japanese equity investors.

Advisers were also keen to hedge out the impact of a weakening yen, so we opted for iShares MSCI Japan GBP Hedged ETF (IJPH), which had outperformed the unhedged MSCI Japan NR GBP index by a stellar amount over the 12 months to December 2014.

The ETF returned 9.7 per cent between 8 January and December 2015, matching the return of its unhedged index, MSCI Japan. However over one year it did not beat its benchmark, returning 9.7 per cent compared with 13 per cent. Unlike in 2013 and 2014, when the ETF dramatically outperformed the index, in 2015 the yen moved sideways against the pound and was not as clear a currency play. Another QE round is now expected in April, although analysts are on the fence as to whether this means more currency weakening in the year ahead. The market was a strong performer in 2015 despite suffering at the hands of the Chinese crash and remains a firm favourite with many advisers, with GDP growth, output and consumer spending all emerging as more positive than expected by the end of 2015.

 

Asia ex-Japan

We chose Asia ex-Japan because of the number of Asian countries set to benefit from lower oil prices in 2015. The collapse in the oil price from over $100 to $40 has hit many emerging market oil exporters, including Russia, but looked to be a gift to oil importing nations, many of which are in Asia.

IC Top 100 fund Pacific Assets Trust (PAC) was our tip in this sector due to its high exposure to India, which made up 30 per cent of assets at the time of writing. It also had significant exposure to the Philippines (8 per cent), as well as 6.4 per cent invested in China, 5.4 per cent in Thailand and 2.4 per cent in Indonesia. All of those countries were set to benefit from lower oil prices as a big chunk of their imports were made up of oil or refined products.

In the end it was a very tough year for Asia ex-Japan, due to China's major stock market crash in August, which reverberated across global markets. China's 'Black Monday' on 24 August led to panicked selling and Asian investors stampeding for the exits, terrified of what a slowdown in Chinese growth would mean for the rest of the region. In one year the MSCI AC Asia ex Japan index is down 6.2 per cent and the AIC Asia Pacific ex Japan sector has fallen by 10 per cent. Those figures look even lower between January and December. Pacific Assets Trust has actually managed to hold up well against that, falling by just 2.6 per cent, and over three years the trust has returned 43.2 per cent compared with just 4.3 per cent for both the AIC Asia Pacific ex Japan sector and MSCI AC Asia ex-Japan Index. However a major element of this market panic was just that - panic - and advisers say Asian ex Japan equities could still be a solid area.

Schroders' Robin Parbrook, head of Asian ex Japan Equities, says: "Looking back on 2015, Asian stock markets have had a challenging year as slowing global and emerging market growth, particularly in China, have weighed on investor sentiment. However, in retrospect, the beginning of 2015 bore striking similarities to the previous year when brokers were also recommending clients buy into China."

He says: "In our view, the key is to ignore the market noise in Asia," adding: "Asia continues to offer significant structural advantages in terms of growth potential over the longer term, but there are short-term headwinds that need to be factored into investment decision making."

 

Wealth preservation

All of that market volatility vindicated our concern at the start of the year, which led us to choose a wealth preservation fund as one of our key tips. It proved our best bet, with RIT Capital Partners (RCP) returning more than any other fund tip for the year.

RCP invests globally across a wide range of assets to prioritise preserving investors' capital over profit maximisation. It aims for long-term capital growth through international quoted securities and unquoted holdings, including via other funds. The fund had delivered positive returns in most years when we selected it, and had recently increased its allocation to absolute-return and credit from 7 per cent to 15 per cent.

RCP has been managed by Ron Tabbouche since 2012, who has succeeded in boosting the fund's performance. It dramatically outperformed its sector this year, returning 15 per cent against 4.7 per cent for the AIC Global sector. The trust is currently trading on a premium of about 4 per cent and has an ongoing charge of 1.25 per cent, which is lower than a number of multi-asset funds, which can be expensive compared with other fund types.

  

Performance of fund tips and benchmarks (cumulative total return %)

FundsTotal return 8 Jan '15 - 14 Dec '151m3m6m1yr3yr5yr10yr 
JPM Europe Dynamic (ex-UK) Fund C - Net Acc (GBP Hedged) (GB00BCV7MM92)9-3.9-0.3-5.09.9
FTSE Developed Europe ex UK - hedged to GBP 3.7-3.72.0-5.97.945.653.071.3
IA Europe ex UK 4.5-1.80.8-5.73.632.237.076.6
iShares MSCI Japan GBP Hedged (IJPH) 9.7-3.14.6-7.09.795.4
MSCI Japan 9.7-1.76.2-2.413.047.8
Pacific Assets Trust (PAC)-2-1.80.0-10.3-2.643.254.6191.8
MSCI AC Asia Ex Japan-12.2-3.12.7-13.6-6.24.34.4116.3
AIC Asia Pacific - ex Japan -12.7-3.61.9-13.7-10.04.310.0170.0
RIT Capital Partners (RCP)14.3-0.47.63.515.051.547.3102.5
MSCI ACWI -2.9-1.73.9-51.733.742.885.3
AIC Global Sector 2.9-1.42.3-4.04.736.742.291.0

UK indicesTotal return 8  Jan '15- 14 Dec '151m3m6m1yr3yr5yr
FTSE 100 -7.3-3.00.2-9.6-2.214.525.6
FTSE All-Share-4.7-2.40.3-8.50.420.332.8

Source: FE Analytics, as at 14 December 2015