2020’s best and worst performing funds

Rob Morgan rounds up the main fund and sector trends in a year like no other for both markets and society as a whole.

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  1. Rob Morgan

What an extraordinary year 2020 has been. For many people, it has been one to forget. The lives of more than 1.3 million people tragically lost to Covid-19 and the global economy suffering its most severe shock in recent history. Yet following a synchronised government response to the economic shock that defied most people’s expectations, there were at least as many positives as negatives for investors.

The performance of major indices shows significant divergence from country to country, while at a sector level too there were extremes with technology posting a remarkable performance. The US tech-heavy Nasdaq index is up over 40% in 2020 to date as spending on technology rose sharply with companies looking to support a larger remote workforce and consumers embracing greater online consumption and entertainment. However, some European markets remain in the red. The UK market was a notable laggard with the additional uncertainty of Brexit hanging over it and exposure to pandemic-afflicted areas such as energy and banks weighing.

Central bank stimulus supported global markets through the spring and summer, providing much-needed liquidity, with government measures introduced to help preserve jobs in the most ravaged industries. There was a broad upturn that favoured the perceived Covid ‘winners’ from greater online activity and healthcare spend. Then, in the autumn, as pharmaceutical companies reported good progress in their quest to develop an effective vaccine against the virus, stock markets rallied further in anticipation of a return to some semblance of normality in the new year. This time some of the depressed areas most affected by lockdown life such as retail, leisure and energy fought back in earnest.

The US election provided investors with plenty to think about, but ultimately markets took the fractious campaigning, as well as Donald Trump’s demands for recounts, claims of fraud and legal challenges, in their stride. Democrat Joe Biden was declared the winner but the fight for control of the Senate continues into the new year with reruns in two seats in Georgia. Markets seem to be assuming the shy Trump voter phenomenon lingers on understating the Republican vote and anticipates no change of Senate control. It’s interpreted that this would temper any of Mr Biden’s more market-unfriendly policies, for instance on taxation, but it’s not a done deal and the race is tight.

Despite the pandemic and tense US-China relations, China was one of the year's best-performing markets and Chinese specialist funds were hot on the heels of US-dominated tech funds. Those orientated towards China’s e-commerce and internet giants were the best performing as insatiable investor appetite for the structural growth on offer in the tech space extended into the region.

Gold equities also deserve a mention as one of the standout assets of the year. Many investors were attracted to gold, first as a safe-haven asset in the midst of the pandemic and then in response to the colossal monetary measures that occurred. Gold can be seen as an alternative, independent 'hard' currency that cannot be debased through money printing, as well as a hedge against future inflation. Gold equities represent a 'geared' play on the bullion price, meaning they typically multiply the effect of a rise but also multiply any fall because profits can be highly sensitive to movements.

One fund house, Baillie Gifford, dominates the list of top ten performing funds in the Investment Association sectors. Baillie Gifford Positive Change, part of our Foundation Fundlist, demonstrated that socially responsible investors have not had to forego strong returns over the year, while other funds from the manager such as Baillie Gifford American and Baillie Gifford Long Term Global Growth Investment topped their respective sectors with an unashamedly growth-orientated approach and exposure to surging e-commerce and internet stocks in both the US and China.

Turning to the poor performing areas, income seekers had a tough time. Many normally reliable dividend-paying companies were forced into cutting or cancelling dividends in order to preserve capital amid the uncertainty of the pandemic. UK equity income funds struggled in particular as drawn-out Brexit negotiations added to investors’ doubts about the prospects for the UK economy.

Meanwhile, commercial property, notably in areas such as retail and leisure, took a direct hit from Covid disruption. The pandemic has had a seismic impact on the property market, altering the daily pattern of our lives and speeding up the migration to online shopping and working from home, which clearly has significant consequences for the outlook for rental income.

Latin America was also a laggard, in contrast to most emerging markets in Asia, as economic progress and industrial reforms were impeded by the spread of the virus. Concerns around the financial health of Venezuela and Argentina also intensified, and many nations in the region struggled with under-developed healthcare systems in their fight against Covid-19.

Although investors should be aware past performance is not a reliable indicator of future results, here are the top and bottom ten Investment Association (IA) funds and sectors* for 2020 with just under a fortnight to go:

Top 10 funds:

Bottom 10 funds:

Top 10 sectors:

Bottom 10 sectors:

Past performance is not a reliable indicator of future returns. Figures are shown on a % total return basis, bid to bid price with net income reinvested; Source: FE Analytics, data for 2020: 31/12/2019 to 17/12/2020. Onshore and retail open-ended funds only.

*There are around 3,000 funds on sale in the UK. The Investment Association divides these into nearly 40 ‘sectors’, broad groupings that help investors and advisers compare funds of similar types before looking in detail at individual funds.

Past performance is not a reliable guide to future returns. This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice.

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