Which Funds Went From Hero to Zero?

We reveal the funds that have fallen from their top spots, and those which have shot up the rankings, in an unprecedent year for investors

Annalisa Esposito 22 December, 2020 | 9:17AM
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The coronavirus pandemic has shaken up the performance of funds this year. Some of those which outstripped their peers in 2019 have found themselves among the worst performers in 2020 as the investing environment changed, while others have soared up the rankings from worst to first.

Morningstar Direct data shows there are three funds which were in the top decile of their Morningstar Category in 2019 but are among the bottom 10% of performers in the group in 2020 year to date. Funds are ranked within their category based on their performance over a certain period; a fund that ranks fifth out of 50 funds, for example, would be in the top decile, or top 10%. 

Fund 2019 Rank (%) YTD Rank (%)  2019 Return (%) YTD Return (%) Morningstar Category
Aegon Diversified Monthly Income 4 93 18.29 -2.58 GBP Moderate Allocation
Premier Miton Income 6 97 27.35 -22.02 UK Equity Income
Premier Miton Monthly Income 7 99 27.22 -23.19 UK Equity Income

Source: Morningstar Direct, data as of December 17, 2020.

In the list are two funds run by Premier Miton, both belonging to the UK Equity Income Morningstar category: two-star rated Premier Miton Income and Premier Miton Monthly Income. The UK Equity Income sector as a whole has suffered in a year which has seen British stocks remain out of favour and has seen a swathe of dividend cuts. But some funds in the group have endured the difficult environment better than others. While the Premier Miton funds are down 22% and 23.2% respectively year to date, the average fund in their category is down 11.7%

Each have around 85% of their assets invested in UK-listed companies and the main detractors to their performance have been holdings in sectors such as energy, industrials and financial services. In particular, airport services group Menzies (MNZS) and one of the world's biggest oil companies, five-star rated Royal Dutch Shell (RDSB), stand out among their worst performing stocks. Indeed, Menzies' share price is about 50% lower than where it started the year. 

Shell struggled as oil prices plunged in the spring and made the difficult decision to cut its dividend for the first time since World War II. The firm announced in Autumn plans to cut up to 9,000 jobs, more than 10% of its workforce. Meanwhile, Menzies, which owns more than 200 airports worldwide, had to lay off more than half its global workforce to cope with the impact of the coronavirus-related slump in air travel.

Lastly, three-star rated Aegon Diversified Monthly Income also finds its way into the table after a turnaround in performance, down 2.6% year to date compared to an 18.3% gain in 2019. The income-focused fund belongs to the Moderate Allocation category, and while its main aim is to produce income it holds a mixture of assets, with 48% of the portfolio in equities and 39% in fixed income. The bond allocation has helped to shield the portfolio from the market sell-off, but it has still underpeformed its category, where the top performing fund has delivered more than 13.8%. 

And From Worst to First

But funds can also seen their fortunes change for the better. Our Worst to First table looks at funds which have moved from the bottom 10% of performers in their category in 2019 to the top decile in the year to date. Interestingly, the funds which have made that climb have not changed from last time we checked back in August.

Fund 2019 Rank (%) YTD Rank (%)  2019 Return (%) YTD Return (%) Morningstar Category
McInroy & Wood Balance 93 6 11.51 11.43 GBP Moderately Adventurous Allocation
Baillie Gifford British Smallr Cos 91 4 12.80 25.58 UK Small-Cap Equity
LF Ruffer Absolute Return 93 9 8.15 8.40 GBP Moderate Allocation
JOHCM UK Opportunities 96 8 13.06 -3.42 UK Large-Cap Equity

Source: Morningstar Direct, data as of December 17, 2020.

While these four funds all found themselves in the bottom performers of their categories last year even while delivering positive returns, This year, some find themselves leading the pack despite being in negative territory. The five-star rated JOHCM UK Opportunities fund, for example, is down 3.4%.

The best performing fund in the list is three-star rated Baillie Gifford British Smaller Companies, producing a stonking 25.6%, as it has successfully tapped into the opportunities in smaller companies, which as we have previously written, are often more dynamic and ready to adapt to change.

In its portfolio, two stocks stand out this year: Ceres Power (CWR), a world-leading developer of low-cost fuel cell technology, and AO World (AO.), an electrical retailer operating in the UK and Germany, which specialises in household appliances and electricals.

Ceres Power has significantly outperformed this year as its share price soared to £11.49 from £2.69 at the beginning of the year. The company is hoping to play a key role in a clean energy future. South Korea's Doosa is using the technology to manufacture a combined-heat-and-power unit for commercial buildings. 

Meanwhile, AO World shares have leapt as stay-at-home Brits snapped up domestic appliances to spruce up lockdown life. The FTSE 250-listed company's share price has reached an all-time high this year, climbing from 85p to 405p year to date. 

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