Sparkling performance of funds may whet appetite for greater risk

We’ve enlisted the services of MoneyMate to identify the top Irish domestic funds over the past 12 months

Tue, Aug 6, 2013, 01:00

If you’re fed up with earning returns of not much more than 2 per cent in a savings account and are ready to take a chance and plunge back into riskier assets, it might be time to invest in a fund. But which are the better options?

Bearing in mind that “past performance is no guarantee of future performance” we’ve enlisted the services of MoneyMate to identify the top Irish domestic funds over the past 12 months.

Irish equities
Winner: Canada Life/Setanta Irish Equity
Annual growth: +59.2 per cent
Loser: Standard Life Prosperity Irish Equity fund
Annual growth: +21.7 per cent

It’s one of the strongest markets in Europe over the past year, but the ever-decreasing number of stocks listed on the Irish Stock Exchange means that the days of actively managed funds focused on the Irish market may be numbered.

The Canada Life/Setanta Irish equity fund, for example, which is managed by local investment group Setanta (now a part of Canada Life/Great-West Lifeco), has had the best performance over the past 12 months, with its “fundamental value approach”. This saw the fund return almost 60 per cent in that period. Its top holding is CPL Resources, which accounts for 13 per cent of the fund, followed by DCC (12.9 per cent) and Total Produce (12.0 per cent).

However, according to fund manager and equity analyst David Pastor, this strategy of identifying smaller companies is set to come to an end, as Setanta has decided to move the fund to a passive approach.

The change has come about for a number of reasons, the main one being the lack of demand for an Irish equity fund in the current environment.

“It’s difficult to get a pensions broker to allocate to Irish equities. There is no money coming in to the fund, and it hasn’t been coming in for years,” says Pastor.

Another factor is the lack of investment targets, with the Irish market continuing to diminish in size.

“The pool has shrunk significantly over the last few years, with a number of important names leaving, some others going bust and others not investable according to our risk management framework,” says Pastor, adding, “it’s difficult to deploy our skills in a universe which is much smaller”.

Apart from Setanta’s fund, other notable performers include the Focus Irish equity fund (+47.5 per cent) from Davy and the Ulster Bank Secure Iseq fund (+46.9 per cent). Actively managed funds are showing their worth in this category, with index tracking funds, such as Irish Life’s Indexed Ireland fund lagging behind, albeit with a still chunky return of 32.2 per cent.

Indeed given the Irish market’s performance over the past year or so, there are no real losers in this category, but the fund that takes the dubious honour of posting the lowest returns is the Standard Life Prosperity Irish Equity fund, which has returned a significant 21.7 per cent over the past 12 months.

US equities
Winner: VAM Funds US Micro Cap Growth
Annual growth: 44.3 per cent
Loser: Zurich Life 5 Star 5 Americas
Annual growth: +11.99 per cent

With the US stock market having jumped off its lows in recent years, all the funds in this category are in positive territory. But which is the best? The winner in this category is a US Micro Cap Growth fund from US boutique manager Driehaus Capital Management.

It invests in an un-leveraged portfolio of equity and equity-convertible securities and cash or cash equivalents, and is denominated in US dollars. Its biggest holding is in healthcare, at about 30 per cent, followed by technology and consumer at 20 per cent and 18 per cent respectively. Some of its biggest stock holdings include SPS Commerce, a provider of on-demand supply chain management solutions and Fiesta Restaurants, which operates the Taco Cabana and Pollo Tropical brands.

Such strong performance does come at a price however, and the fund charges 2.25 per cent a year, as well as a maximum initial charge of 5 per cent.

Another strong performer is the AXA Financial Blackrock US Index, which has climbed by 23.5 per cent in the period under review.

At the bottom of the pile is Zurich Life, with its 5 Star 5 Americas fund, which forms part of the life assurer’s Matrix range of funds. While it has made significant progress over the past year, advancing by 12 per cent, it nonetheless lags behind its peers. It holds 25 equities in five different sectors and it may also hold stocks in Latin America and Canada. Its top holdings are Petroleo Brasile and ConocoPhilips.

Government bonds
Winner: Prescient Eurobond Indexmaster
Annual growth: +10.1 per cent
Loser: Bank of Ireland Life Smart Funds 2007 Gilt
Annual growth: -1.5 per cent

The Prescient Eurobond Indexmaster, which is managed by the South African manager Prescient, which acquired AIB Investment Managers last year, tracks the Merrill Lynch EMU Direct Government Bonds 5+ Years Index.

On an annual basis the fund has performed strongly, with growth of over 10 per cent. However according to Louise McGuigan, head of asset management with Prescient, since the start of the year the environment has changed considerably.

“We had a spectacular period of bond performance over the last four to five years when there was so much uncertainty in growth,” she says but adds that the sell-off in government bonds since then has meant that over the six months to the end of June, the ML index has been “flat as a pancake”.

Looking forward, McGuigan notes that the asset manager is “cautious on bonds” with the asset allocation for pension funds under-weight on bonds. Another strong performer is Irish Life Indexed Long Bond Fund (+8.1 per cent) and KB Investors Fixed Interest (+7.7 per cent).

Given its annual management charge of 1.5 per cent, investors in Bank of Ireland Life’s Gilt smart fund will find themselves down by 3 per cent over the past 12 months.

Euro zone equities
Winner: MGI Funds Eurozone Equity
Annual growth: +39.8 per cent
Loser: Irish Life Fidelity EMEA
Annual growth: +1.2 per cent

As evidenced by the funds in this category, European equities are also performing strongly – some more than others. The MGI Funds Eurozone Equity fund for example is roaring ahead, with returns of almost 40 per cent in the year to July 30th.

Its main holdings include healthcare stocks Sanofi and Bayer.

Other strong performers in this category include the New Ireland European Equity (+31.8 per cent) and the Friends First Ind Eurozone Equity fund (+31.7 per cent).

Faring less well however is the Irish Life Fidelity EMEA fund, which has a much broader reach than a strict Eurozone fund, and covers Europe, the Middle East and Asia, with a very strong bias towards South Africa.

Winner: Friends First Corinthian Property Fund
Annual growth: +27.6 per cent
Loser: Friends First Insight Property
Annual growth: -16.9 per cent

It may be the top performing property fund over the past 12 months, but despite advancing by more than 25 per cent, investors in the Corinthian fund, which is managed by F&C Reit’s Irish property management team, are unlikely to find this much comfort.

The fund has had a turbulent ride since its inception in 2007, when it was originally set up to invest in four Irish supermarket properties which were let to Superquinn. Investors are now down by almost 90 per cent on their original investment, and not only that, but investors remain locked-out of the fund. While it is six years into its seven-year term, according to Friends First the manager may look to extend it beyond this term “if there is a strong case that this would be in the best interest of policyholders”.

Friends First is also responsible for the fund with the lowest annual return in this category – the Insight fund which is a geared UK commercial property trust that holds a portfolio of commercial properties throughout the UK.

Japanese equities
Winner: Danske Invest Japan
Annual growth: +58.5 per cent
Loser: Aviva L&P Japanese Equity
Annual growth: +16.2 per cent

While it was one of the top performing stock markets not so long ago, the Japanese bull market has had a more turbulent time of late, due to uncertainty surrounding prime minister Shinzo Abe’s growth strategy.

Nonetheless, the Dankse Invest Japan fund has forged ahead, boasting a particularly strong return over the past 12 months.

The fund invests primarily in large cap Japanese equities and its top holdings include Toyota, Mitsubishi and Sumitomo Realty & Development.

Other strong performers in this category include the AAM Global Japanese Equity fund, which is up by 50.8 per cent, and the AXA Financial GLG Japan Core Alpha Fund (+ 42.2 per cent).

Bottom of the heap may be Aviva’s Japanese fund, but it still returned more than 16 per cent over the year.

Winner: AAM Global Technology
Annual growth: +11.8 per cent
Loser: Ark Life Future
Annual growth: +1.0 per cent

Scottish manager Aberdeen is behind the strongest performing fund in the technology sector in the 12 months to July 30th, with an advance of almost 12 per cent.

The fund focuses on companies in high technology industries and semi-conductor specailist TSMC, Samsung and Oracle are its top holdings, and it has a very heavy emphasis on US companies, with almost 50 per cent of the fund allocated to the US.

Elsewhere, other strong performers include Zurich Life’s TopTech 100 (+9.1 per cent), which tracks the NASDAQ-100 index. Its top holding is Apple, accounting for 11.3 per cent of the fund and the fund has likely been impacted by the recent relative rise and fall of the tech giant.

Data source: Moneymate