4 Funds that Went from Worst to First

We look at the funds that have managed to take advantage of market volatility, and have moved from zero to hero within their Morningstar Category 

Annalisa Esposito 11 August, 2020 | 10:53AM
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Top performing funds

Investors who stuck with some of the worst performing funds in 2019 have been rewarded this year. Because while many investors have suffered in the market volatility that has characterised 2020 so far, some funds have thrived in this environment.

We have sought out those funds which have managed to take advantage of market volatility to turn their fortunes around, moving from the bottom of the performance tables six months ago to the top of the table at the halfway point of this year. 

Morningstar Direct data shows there are four funds that were in the bottom decile of their Morningstar category at the end of 2019 managed to climb to the top 10% of performers in their group in the first half of 2020. We look at those funds which have gone from zero to hero: 

zero to hero

Baillie Gifford British Smaller Companies

Baillie Gifford British Smaller Companies ranked in the top 4% of its peer group in the first half of 2020. While the fund lost 3.13% in the first six months of the year, this was some 13 percentage points ahead of its Morningstar Category Average, the UK Small-Cap Equity category, where the average loss was 16.2% over the period.

Smaller companies have undeniably felt the brunt of the Covid-19 pandemic. With much of the UK economy forced into shutdown in March, many smaller businesses have been pushed to the brink. 

But there have been winners and losers within that, and investments in the healthcare and communications sectors have helped this fund to the top of its peer group. The sectors account for 23.8% and 14.5% of the portfolio respectively. 

Investments in biotech company Avacta (AVCT) and clean energy producer Ceres Power (CWR) have fared particularly well, their shares soaring an incredible 526% and 106% respectively in the first six months of the year. 

Avacta has been publishing exciting developments in making neutralising antibodies, which attempt to block the way the Covid-19 virus latches on to cells within the lungs. Meanwhile, revenues at Ceres Powers have been on a strong upward path as a result of strong commercial demand for its services. The company has an impressive roster of partners including big names such as German engineering firm Bosch (BOSCHLTD) and Japanese carmakers Nissan (7201) and Honda (7267).

This fund is Bronze-rated by Morningstar analysts, with an ongoing charge of 0.67%. 

J O Hambro UK Opportunities

Gold-rated J O Hambro UK Opportunities found itself in the bottom decile of the UK Large-Cap category last year, despite returning a respectable 13% to investors. Strangely, despite being down more than 9% in the first half of 2020, it is at the top of its cohort. The average fund in the category is down more than 17% - little surprise at a time when the UK stock market has struggled to keep up with its developed world counterparts as it continues to battle concerns over Brexit and a second wave of coronvirus. 

The JO Hambro fund is a concentrated portfolio, with just 33 holdings and a slight tech bias. Among its strongest performers in the first half of the year are one-star rated Barrick Gold (ABX) and Homeserve (HSV), whose shares climbed 55.6% and 23.3% respectively in the first six months of 2020.

HomeServe is a home emergency repairs business (including plumbing and heating repairs). With the country shut at home for months, its services were highly in demand in the first half of the year and HomeServe said it completed around 150 jobs every single hour during the lockdown period. 

Mining company, Barrick Gold, meanwhile, has enjoyed the benefits of gold prices rallying since the March market low. Investors have flocked to the precious metal as a safe haven in recent months, driving it to a record high.

LF Ruffer Absolute Return

The LF Ruffer Absolute fund was one of a small number to produce a positive return in the first half of the year, up 3.7%. It is some 9 percentage points ahead its Moderate Allocation category average, putting it into the top 3% of performers in its peer group. 

As with many absolute return funds, Ruffer's investment objective centres around reducing volatility, investing across different asset classes, including equities, bonds and currencies, with the aim of achieving a positive return regardless of the economic environment. 

Morningstar analysts rate the fund's ability to preserve capital in all financial market conditions: “The portfolio building blocks here are largely conventional asset classes, which are then blended within the portfolio to ensure there is always a balance between what are considered greed and fear assets.”

They add that the Bronze-rated fund has a “robust and consistent investment process, keen eye on risk, and focus on a single core investment strategy set this aside from many peers".

Commodity investments made up some of its strongest holdings in the first half, including the LF Ruffer Gold fund, Kinross Gold (K), Wheaton Precious Metals (WPM) and Gold Fields (GFI) – all up more than 50% over the period.

McInroy & Wood Balance

Finally, the Silver-rated McInroy & Wood Balance, makes it on to the list with a 4.7% return in the first six months of the year. It is some 9.2 percentage points ahead of its Morningstar Category, Moderately Adventurous Allocation.

A balanced fund that has the flexibility to invest in any geographical area and any sector, it is investments in consumer stocks and basic materials which helped the fund to its strong performance in the first six months of the year. 

Among its best performing holdings is US-based Tractor Supply (TSCO), whose shares climbed 52.2% over the period. The company offers products for home improvement, agriculture, lawn and garden maintenance and pet care - all areas which have been greatly in demand with people stuck at home for months on end.

The firm's chief executive, Hal Lawton, has said he believes consumers will likely stick to the new shopping habits they have picked up during the coronavirus pandemic, which bodes well for the business. Its strong second-quarter forecast at the end of May estimated an increase in net sales of up to 29% and the retailer is planning to build 85 new stores this year.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Annalisa Esposito  is a data journalist for Morningstar.co.uk