Deciding which markets you want to invest in is only the first step in planning your portfolio: you then need to decide how to invest. While MoneyWeek often suggests individual stocks, we know that many readers prefer to invest through funds. Back in 2000, that generally meant actively managed open-end funds, or ‘unit trusts’ as they were always known, (although the more modern open-ended investment company (Oeic) structure had been introduced in 1997).
The range of index funds available was much smaller than today, the first London-listed exchange traded fund (ETF) only arrived in April 2000, and while investment trusts had been around for more than 100 years, they were more of a specialist area than they are today, in part because financial advisers had no incentive to recommend them.
So, how did the best funds you might have picked back then perform? We asked Morningstar to calculate the top-performing funds in several major categories over the past 15 years. We also looked at how many had outperformed their benchmark – but there is a big caveat to this, as we’ll explain later .
UK All Companies
Invesco Perpetual High Income, 332%
Of the 116 funds in this group with a 15-year track record, a total of 59 (51%) have underperformed their benchmark. Heading the field is Invesco Perpetual High Income, followed by its stable mate, Invesco Perpetual Income. Both were overseen by Neil Woodford until March 2014, when he left to start his own firm.
UK Smaller Companies
Marlborough Special Situations, 649%
It’s not a surprise that the smaller companies category was home to several of the top-performing funds (see table below). Small caps usually include both the best- and worst-performing stocks in the wider market, so this sector frequently includes both star funds and total disasters. Thiswas a small category, with just 17 surviving funds, of which 7 (41%) underperformed their benchmark.
Europe excluding UK
Jupiter European, 275%
Funds invested in non-UK European equities appear to have been the best of the bunch in terms of success rates. Most surviving funds in this category managed to outperform their benchmark: only 16 out of 38 funds (42%) fell short.
North America
GAM North American Growth, 172%
By contrast, funds holding North American stocks had a terrible success rate: 16 out of 21 (76%) failed to match their benchmarks. Even those that made the grade had low returns compared to funds investing elsewhere in the world.
Japan
Man GLG Japan CoreAlpha, 61%
Japanese equities were also a sorry state of affairs. A total of 15 out of 22 funds (69%) invested in Japanese stocks underperformed. Returns were very low, partly due to the depreciation of the yen in relation to sterling.
Global equity
Invesco Perp. Global Small. Co’s, 249%
Wider-ranging mandates, such as global equities, are supposed to give managers more chance to outperform by seeking out the best opportunities anywhere. But the results for this category are less convincing than you might hope. Out of 52 surviving funds, only 26 (50%) beat their benchmark.
Asia Pacific excluding Japan
Stewart Investors Asia Pacific, 573%
Of the 26 surviving funds in this group, a total of 12 (46%) fell short of their benchmark. But if you invested in Stewart Investors Asia Pacific – better known by its former name of First State Asia Pacific – back in 2000, you did very well. The fund has given investors the second-highest returns of all UK-based retail funds over the past 15 years (see table below). Its closest rival was Fidelity Institutional South East Asia, which made a substantially lower 317%.
Global Emerging Markets
Stewart Investors Global Emerging Markets, 426%
Fund managers often point to emerging markets as a place where active management should pay off. But the numbers don’t support that. Of the 11 surviving funds global emerging markets funds, seven failed to failed to beat their benchmark. Stewart Investors (again, formerly First State) was far ahead of Baillie Gifford Emerging Markets, in second place with 277%.
Why the reality is worse
Finally, the caveat. The numbers above are based on surviving funds. We weren’t able to get survivorship rate over 15 years, but it was around 50% in most categories over the past ten years, according to Standard & Poor’s. Given that underperformers are more likely to be closed than successful ones, it’s almost certain that the proportion of funds that existed in 2000 and outperformed the market over the next 15 years was much worse than the statistics above. In short, it’s a reminder that unless you are especially good – or lucky – at picking managers, index funds and ETFs are likely to be a better choice.
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| The five top-performing funds over the past 15 years | ||
|---|---|---|
| Fund | Return (cumulative) |
Sector |
| Marlborough Special Situations | 649% | UK smaller companies |
| Stewart Investors Asia Pacific | 573% | Asia Pacific ex. Japan |
| Investec UK Smaller Companies | 524% | UK smaller companies |
| Aberforth UK Small Companies | 487% | UK smaller companies |
| Stewart Investors Global Emerging Markets | 426% | Global emerging markets |
| Data supplied by Morningstar | ||