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How Japan and small-caps were top performers of 2015

Three of the top 10 best open-ended funds come from the smaller companies sectors.
December 16, 2015

Japan and smaller companies dominated the top performers among open-ended funds over the first 11 months of 2015.

The best performing fund was Legg Mason IF Japan Equity (GB0033507467), up 40 per cent over this period. JPMorgan Japan (GB0030879471) is fourth best, posting a 25 per cent return and in seventh place is Baillie Gifford Japanese Smaller Companies (GB0006014475) up 24.5 per cent.

Legg Mason IF Japan Equity is the top performer in the Investment Association (IA) Japan sector over one, three and five years. "However, this fund is hugely volatile and will have great years of performance when it is top of the charts, but periods when it does not do so well," says Adrian Lowcock, head of investing at AXA Wealth.

For example, the fund rose nearly 64 per cent in 2013, but fell 1.4 per cent in 2014. Legg Mason IF Japan Equity is domestically focused and, although ranked in the IA Japan sector, has a significant portion of its assets in small- and mid-caps.

Four of the top 10 performers are focused on the UK: MFM Techinvest Special Situations (GB00B0BB2273), IC Top 100 Fund ConBrio Sanford Deland UK Buffettology (GB00B3QQFJ66) PFS Chelverton UK Equity Growth (GB00BP855954) and Standard Life Investments UK Smaller Companies (GB0004331236).

ConBrio Sanford Deland UK Buffettology is still relatively small at £21m, but its performance has been impressive over its first four years. Fund manager Keith Ashworth-Lord runs a concentrated portfolio of investments and tries to keep portfolio turnover down. His guiding principle is the philosophy of business perspective investing - a successful long-term investment strategy associated with Warren Buffett and other disciples of Benjamin Graham.

  

Top performing funds over first 11 months of 2015

FundIMA SectorTotal return 1 Jan-15 to 30-Nov-15Ongoing charge (%)*
Legg Mason IF Japan Equity Japan40.11.08
MFM Techinvest Special SituationsUK Smaller Companies33.31.77
H2O Multireturns N/D(GBP)Targeted Absolute Return26.11
JPMorgan Japan Japan25.20.93
ConBrio Sanford Deland UK BuffettologyUK All Companies25.11.63
Man GLG Continental European GrowthEurope Excluding UK24.71.03
Baillie Gifford Japanese Smaller Companies Japanese Smaller Companies24.50.63
SF PositiveMixed Investment 40-85% Shares24.12.09
PFS Chelverton UK Equity Growth UK All Companies24.11
Standard Life Investments UK Smaller Companies UK Smaller Companies23.70.77
FTSE All Share TR GBP2.3
FTSE 100 TR GBP

0.4

MSCI World NR GBP

4.5

S&P 500 TR GBP

6.7

Source: Morningstar

Performance as at 30 November 2015

*For platform share class

  

It's a similar story in terms of the best performing sectors, with Japan, Europe and the UK doing well, in particular smaller companies. The IA Japanese Smaller Companies and Japan sectors increased 15.3 per cent and 14.7 per cent, respectively, followed by European Smaller Companies and UK Smaller Companies up 14.4 per cent and 13.3 per cent.

Europe Excluding UK and Europe Including UK were in sixth and seventh places respectively up 8 per cent and 7.7 per cent, with UK Equity Income and UK All Companies right behind, having risen 6.6 per cent and 5.2 per cent.

"Europe and Japan have really benefited from quantitative easing in 2015, and there are expectations that both areas will extend their programmes," says Mr Lowcock. "Japanese and European smaller companies have more of a domestic focus than their large-cap peers, so are well positioned to capture regional improvement. Japan could do well for some time as it is recovering economically and structural reforms are coming through.

"European economic data is generally positive and consumer confidence is recovering. After rising, valuations of shares are now back at similar levels as at the beginning of 2015, but the outlook has improved, and relative to the US it is cheaper, with European earnings growth more attractive. The currency has weakened, which is good for exporters."

After a pullback in 2014 UK smaller companies have had a good year as earnings continued to grow, and these are more exposed to the domestic economy and not as sensitive to the stronger pound as their large-cap peers. But going ahead Mr Lowcock feels that it will be important to be selective, as not all areas of these are cheap with, for example, microcaps cheaper than mid-caps, so picking the right funds will be important. He likes Franklin UK Smaller Companies (GB00B7FFF708) and IC Top 100 Fund Marlborough UK Micro-Cap Growth (GB00B8F8YX59).

We will have recommendations for funds, investment trusts and exchange-traded funds (ETFs) for 2016 and beyond in the Tips of the Year special issue of 8 January.

  

Top performing fund sectors over first 11 months of 2015

SectorTotal return 01-Jan-15 to 30-Nov-15 (%)
IA Japanese Smaller Companies15.3
IA Japan14.7
IA European Smaller Companies14.4
IA UK Smaller Companies13.3
IA Technology & Telecommunications8.0
IA Europe Excluding UK8.0
IA Europe Including UK7.7
IA UK Equity Income6.6
IA UK All Companies5.2
IA North America4.9

Source: Morningstar