What a contrast to last year! In 2008, the rare fund managers who made investors money looked like miracle workers. In 2009, with all but two sectors (Japan and UK Gilts) showing a rise over the year, it was difficult for managers to lose money (though some gave it a pretty good go) and as ever, it was only a select few who really stood out – here we highlight the heroes of 2009.
Asia/Emerging Markets
The most successful sectors in 2009 were Global Emerging Markets, up 57.75% in sterling terms, and Asia Pacific excluding Japan, up 52.48%. Both benefitted from unexpectedly resilient domestic economies and banking sectors that avoided the costly follies of their western counterparts. Typically the funds that did well in 2008 lagged their benchmarks in 2009. As in the UK, the characteristics that did so well previously – profitable companies with low debt and strong cashflows - were left behind and so were the funds that invest in them. Funds lagging their benchmarks included Angus Tulloch’s First State Asia Pacific Leaders, up 47.79%, and Aberdeen Asia Pacific, up 52.30%, but given that they still rose strongly investors should be satisfied, particularly given the sleep at night comfort these funds provide.
UK Smaller Companies
Perhaps surprisingly some of the best performing funds of last year invested in the UK. Though the blue chip companies of the FTSE 100 index were up 27.33% on the year, the real gains were in the smaller brethren – the FTSE 250 index rose 50.64% and the FTSE Small Cap rose 54.27%. The best performing stocks tended to be the poor quality companies that did so badly in 2008. In what was dubbed the “dash for trash”, companies whose survival had previously been in question bounced strongly when investors realised that the world wasn’t going to come to an end after all. Funds positioned to benefit included Legal & General UK Alpha, up 88.36% over the year, SVM UK Opportunities, up 101.35%, and Close Special Situations which rose an incredible 246.87%.
Whilst these funds offered amazing returns for those who got in at the right time, their volatility isn’t what most investors will be comfortable with – all three underperformed during 2008. The best performing of our rated small cap funds was the 3* Marlborough UK Micro Cap Growth, run by Giles Hargreave, which rose 59.7%. Hargreave, Chief Executive of stockbrokers Hargreave Hale, has worked in asset management since 1969 and has achieved average monthly outperformance of an incredible 1.31% in an 11 year track record in the IMA UK Smaller Companies sector. The fund is rated 3* by Bestinvest, but as the name suggests it specialises in sub £50m market cap stocks and is not an investment for the faint hearted.
Heroes
Perhaps the true heroes of 2009 are the managers like Hargreave who also did well in 2008, demonstrating their skill in vastly differing environments. A good example is Crispin Odey, founder of Odey Asset Management and manager of the Odey Opus fund. Odey has spent the last few years warning of the dangers of the credit bubble and when the crisis broke his funds were positioned to benefit, resulting in strong performance in 2008. Then, at the depth of the crisis, he bought into Barclays Bank when its very future seemed in doubt and some were suggesting it could join Northern Rock and RBS in government hands. His boldness has been rewarded: with Barclays back from the brink the Odey Opus fund has risen by 21.83% over the 12 months, comfortably ahead of the MSCI World index which was up 16.45%.
One manager who achieved success despite not turning over his portfolio is Tom Dobell, manager of M&G Recovery. The fund celebrated its 40th anniversary in style, growing by 40.85%, comfortably ahead of the FTSE All Share at 30.12%. Dobell tends to hold companies for the long term and wasn’t positioned specifically for economic recovery, looking instead for businesses that would do well regardless. He benefitted from two holdings in particular, Tullow Oil and African Minerals, “running his winners” by allowing both to increase in value rather than cutting them back as other managers might. Dobell has been dubbed “the next Anthony Bolton” by some – his fund is currently attracting large inflows but if he continues doing this well he will prove them right.
At Bestinvest we’ve always believed in the maxim of “follow the fund manager, not the fund” – with managers changing jobs fairly frequently we watch their moves closely to ensure your portfolios remains in the hands of proven talent. The career of Stephen Harker shows the benefits of this approach. Though he has only been running the GLG Japan Core Alpha fund since 2006, by looking at his track records at previous employers, Prudential and TCW, we could see he displayed exceptional ability. Harker follows a deceptively simple process, using a mean reversion strategy to switch from companies on high valuations to companies on low valuations. One of the few fund managers to make investors money during 2008, Harker continued his success in 2009 despite an enforced change of employer when GLG Partners acquired Société Générale’s UK asset management business. Sensing a market dislocation at the end of 2008, he ramped up risk by going into small caps, cutting financials, and increasing his technology bet. As a result his fund rose 9.29% despite a 6.7% drop in the Topix index.
Our View
We’re constantly told that past performance is not a guide to future performance and investors certainly shouldn’t take it at face value – one year’s heroes can easily be the next year’s villains, and many of the funds that did so well in 2009 will struggle going forward. One consequence of the year’s large market movements is that the balance of investors’ portfolios may have shifted. We advise investors to check that their asset weights are still in line with their asset models to ensure that their risk levels are still in line with their objectives. Periodic rebalancing is key to maintaining the benefits of a diversified portfolio, and during times of rapid market movements it is more critical than ever.
Please call one of our Advisers on 020 7189 9999 if you would like help in reviewing and balancing your portfolio.