Every investor knows the past performance is no guide to the future. Just take a look at hero-to-zero Neil Woodford.
Last year’s winners all too often become this year’s losers, but it can also happen the other way around.
Losers win
Investment platform Willis Owen examined the 10 worst-performing UK funds of 2018, and found nearly all are enjoying a bumper 2019 as the investment cycle swings back in their favour.
Some fell more than 20% in 2018, which was a tough year for stock markets generally, only to rebound by similar amounts this year. For example, Allianz UK Mid Cap was the third worst-performing fund in the entire Investment Association universe in 2018, falling 23%, but bounced back 19% in the year to 31 May.
Threadneedle UK Smaller Companies fell 21% but has rebounded 17%, while Merian UK Dynamic Equity 19% but is up 16%.
Here’s the list:
|
Fund |
2018 performance (%) |
2019 performance (%) |
|
Allianz UK Mid Cap |
-22.62 |
19.3 |
|
Threadneedle UK Smaller Companies |
-20.67 |
17.13 |
|
Merian UK Dynamic Equity |
-19.40 |
16 |
|
Quilter Investors Equity |
-23.70 |
15.68 |
|
Merian UK Mid Cap |
-21.54 |
14.57 |
|
Rathbone UK Opportunities |
-19.43 |
13.4 |
|
Artemis UK Select |
-19.70 |
12.03 |
|
Standard Life Investments UK Equity |
-21.87 |
6.30 |
|
LF Woodford Income Focus |
-20.25 |
0.32 |
|
L&G UK Alpha Trust |
-25.05 |
-2.8 |
You’ll note there is a Neil Woodford fund in there, although not his suspended £3.7bn flagship Woodford Equity Income. The £552m LF Woodford Income Focus does not hold any unquoted stocks, although it does hold mid-caps and smaller companies alongside the blue-chips. It fell more than 20% last year and has climbed just 0.32% this year.
Bad for good
Willis Owen’s head of personal investments Adrian Lowcock said this shows Woodford’s performance woes are not only due to holding unlisted stocks. “The fund’s positioning suffered during high levels of Brexit uncertainty, such as in December and again this May, when Theresa May announced her resignation.”
One fund remains totally in the doldrums, L&G UK Alpha Trust, which has struggled since the departure of successful manager Richard Penny in January 2018.
The rest did not suddenly become bad funds last year, then good ones this. 2018 was difficult for stock markets all round, amid concerns over the US/China trade war and Federal Reserve tightening. Sentiment has picked up this year, as the prospect of more rate hikes recedes.
Take a closer look
This is a reminder that one bad year is no reason to sell a stock or a fund, just as one good year is no reason to buy. What goes up can come down (and the other way around). Which means you need to take time to judge the underlying investment case.
This research may also excite contrarians, who like to pick up funds or stocks when they are down. Often the best time to buy an investment is after a spell of underperformance, when sentiment is low and you can buy a stock on the cheap.
There are no guarantees, though. There never are with stocks and shares. Some falling knives may have even further to fall.
No financial adviser has sold a fund to their clients by claiming “this is brilliant, it fell 25% last year.” You might want to consider it, though.
