The incredible stockmarket bounce-back of 2009 ran out of steam this year. In Europe the big theme was the bailouts of cash-strapped governments in struggling peripheral economies. As for the US and Britain, at the start of the year we were wondering whether their weak recoveries would gain strength.
We are still wondering a year later. So for 2010’s winners, an investor must look to commodities and to their buyers, emerging markets. As an asset class, some small caps fizzed. One thing’s for sure – with interest rates at a record low and inflation creeping upwards, there wasn’t much to be gained from leaving your money in the bank this year.
Commodities and Asia paid off
At the beginning of 2010, it was clear that emerging markets, especially in Asia, were recovering more quickly than the developed world. That trend continued and generated some impressive returns for commodity and Asian funds. But demand wasn’t the only factor behind commodity price rises. The US launched a second round of quantitative easing – effectively pumping $600bn of ‘new’ money into the economy. As a result, soft commodities in particular had a strong year. Corn led the pack with a 30% rise so far this year. It was closely tracked by soybean, up 27%, and wheat, up 21%.
Metals have also enjoyed a buoyant 2010. Copper is up 23%, while silver gained 70%. Gold’s bull run, which dates back to 2002, shows no signs of abating. The yellow metal costs almost 25% more now than it did at this time last year. An ounce will set you back an eye-popping $1,370.
So it’s no surprise that this year a commodity fund was the FTSE All-Share Equity Investment Instruments’ best performer. The City Natural Resources High Yield Trust – a closed-end fund – focuses on mining stocks and trusts. Buying shares in companies that dig stuff from the ground has earned it almost 72% so far this year. Asian markets – excluding Japan, which failed to spark for another year – performed strongly in 2010. They may not yet have ‘decoupled’ entirely from the Western world, but they are growing much more quickly.
One fund to do well from this trend was the Aberdeen Asian Smaller Companies Investment Trust. Another closed fund, it rose 61% by picking minnows in Asia and Australasia – and avoiding Japan.
Big returns from small companies
Trusts focusing on smaller companies did well across the board as investors suddenly went back into ‘risk on’ mode. BlackRock Smaller Companies Trust was the leader of the pack with 71% gains this year. It was closely followed by smaller company trusts from Standard Life, Throgmorton, Montanaro and Henderson.
Losers in 2010
Of course, not all funds are successful – in fact most aren’t. So who lost out?
It was a bad year for alternative energy. Thanks to unconventional gas fields there was a glut of gas in 2010 and prices fell 40%. That made renewable energy projects suddenly look a lot more expensive. Another hit came from government retrenchment. Despite talking green, lots of cash-strapped Western governments avoided committing to the expensive tariffs that lots of renewable energy projects need. The biggest faller in the index was the BlackRock New Energy Investment Trust. The fund tries to find winners in the alternative energy field and backs companies that are developing new energy technology. But it dropped 21% as investors lost faith in the theme.
Funds that invested in Europe also had a difficult year. The continent was hit by – and has yet to recover from – a series of sovereign debt crises, kicked off by Greece. As a result, two Europe-focused funds found themselves in the bottom ten of their peers. Fidelity European Values aims to “generate long-term capital growth from the stockmarkets of continental Europe” – it did the opposite this year and sank 4.43%. The Gartmore European Investment Trust managed to do slightly better – it fell only by 3.43%.
Best and worst of the decade
With 2010 coming to a close, now is a good time to ask which funds have had the best, and which the worst of times over the decade.
US stocks have had a difficult ten years. Every US equity fund with 100% exposure to the country has lost money for its investors over the last decade. The worst performer was Allianz RCM US equity, which dropped 26%, according to the Financial Express.
Gold stocks have understandably done well on the back of a bull run for the yellow metal. BlackRock Gold and General, a long-time MoneyWeek favourite, is up 710% since 2000. Latin America has also enjoyed strong growth in the last ten years. Brazil, Colombia and Peru have used commodities and sound economic policies to kickstart growth. Argentina has also recovered impressively from its financial meltdown in 2000/2001. One fund to benefit is Threadneedle Latin America. Its investors will be cheering a 387% rise since 2000.