The best – and worst – performing funds of 2016

Are you happy with how your investments performed in 2016? Did you choose your market and/or sector wisely – and your fund provider just as wisely? Or do you want to know where you should have put your money this year?

Well, it's not yet the year-end, but with just two weeks to go, we've taken a look at the best performing Irish funds in the year to December 13th. And the results might give you some pause for thought going into 2017.

We also get some views from the experts as to what the coming year might bring.

But remember the fund manager’s mantra: past performance is no guarantee of future performance. So just because a fund soared in 2016, it doesn’t mean you should expect the same gains next year, so choose wisely.

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The funds

Best of the bunch in 2016 were funds invested in North American equities, thanks to a bit of a Trump bump coming into year-end and the Dow Jones and S&P 500 reaching record highs. If you had put €10,000 into New Ireland’s North American fund last December, you would now be sitting on about €12,700 (gross) now, thanks to a very handsome return of 27 per cent.

Managed by State Street Global Advisors, the fund tracks the performance of the S&P 500. Long-term investors in the fund will have done well: it’s had positive returns each year since 2011, with a return of 29 per cent in 2014 alone.

But there are plenty of other index options available, as well as cheaper exchange-traded funds (ETFs), which you can buy from a stockbroker

Coming off a few years of under-performance, emerging market equities were also particularly strong during the year, and you didn’t have to choose wisely as an index fund would have done the business for you in 2016.

With emerging markets significantly outperforming their developed peers, thanks to recovering commodity and oil prices, there was no need for a specific strategy to earn outsize returns during 2016. Irish Life’s indexed fund, which tracks the MSCI World Emerging Markets Index, with exposure to China, Brazil, India and South Korea, breezed past the 20 per cent return mark by mid-December. And it was not alone; index funds from New Ireland and Zurich Life also hit the 20 per cent return mark.

Geographically focused emerging market funds, such as Standard Life’s China fund, or the Fidelity India fund available from Irish Life, were also positive but returns failed to move into double digits.

In line with overall equity market trends, ethical equities also surged, a bonus for those who don’t like investing their money in tobacco or defence stocks. New Ireland’s fund, which avoids the aforementioned sectors as well as pornography, animal testing for cosmetics and gambling stocks, returned 20 per cent in the year, but it seems it chose well. South African fund manager Prescient saw its fund lose almost 5 per cent during the year.

Despite a lull in the IPO markets, it was hard to lose money in a tech fund in 2016, with all the funds featured in this survey returning more than 10 per cent in the year to December 13th. In November the Nasdaq closed at an all-time record high,

The table also offers a note of caution for investors swayed by structured or guaranteed products, which tend to offer a deposit type structure with a bit of market exposure – at a cost.

Irish Life’s Securescope product returned just 2 per cent during the year, while Friend’s First Protected Equity fund lost 1 per cent. The fund invests in a combination of equities, government bonds and cash, with the equities driving gains and the bonds and cash protecting your capital – or not, as was the case in 2016.

And the fund also comes with some hefty charges; a base charge of 1.1 per cent increasing up to 1.5 per cent depending on the particular product option.

And what about 2017?

For Ian Quigley, head of investment strategy with Investec, volatility will likely be the name of the game over the coming year.

“From 2009-15, volatility was relatively low and it was a much more comfortable place to be but investors now have to be able to tolerate volatility in their capital,” he says, adding that 2017 will likely bring “heightened volatility”.

Investors should prepare for a "rockier ride" and more volatility in 2017, agrees Paul Kenny, senior investment consultant with Mercer.

This means they shouldn’t underestimate the risks of exposing themselves to the markets but nor should they over-react at crunch points, such as when markets plummeted in the aftermath of the Brexit vote.

“Investors need to be realistic and say ‘if I want a return for my capital then I need to hold more in cash to balance that out”, advises Quigley, adding that diversification can help protect against the downside.

“Having internationally diversified assets makes sense, it will protect you,” he says.

A key reason for this level of volatility will of course be political risks – on both sides of the Atlantic.

“A lot of investors are looking at the European political landscape as it will have a very important impact on how 2017 unfolds,” says Kenny, pointing to risks from on-going Brexit negotiations, concerns around the Italian banking/political system; and elections in France.

If parties in the centre stay in power, and if Brexit is of the soft, rather than hard, variety, risks will be contained; but if the far-right Front National wins the presidency in France, and the UK gives up its close ties with Europe, it’s “potentially risky”, notes Kenny.

As Quigley puts it, “There is good value in euro equities but there’s a reason for it”.

Euro concerns

Elections across Europe next year could also bring forward euro concerns, and the viability of the single currency going forward.

On the other hand, Kenny points to investment managers who say that euro zone equities look relatively cheap at present, underperforming the US in 2016, so if political risks dissipate, and pro-growth fiscal stimulus type politics emerge on this side of the Atlantic also, “it could go the other way”.

“But the uncertainty is how and when it comes through,” says Kenny.

Across the Atlantic, uncertainty also dominates. Some market commentators have suggested that based on earnings, US equities look expensive. For Quigley, however, the US market “looks expensive for the long-run, but in the near-term could do OK”.

While the election of Donald Trump as US president-elect gave equity markets a lift, the jury is out as to how he will follow through with policies such as cutting corporate tax, which could give markets another boost.

“Whether there will be further follow through on that is difficult to say,” asserts Quigley, “The momentum looks strong, which suggests gains can be sustained, but higher volatility is to be expected”.

Emerging markets may also offer some continuing potential.

“While there are concerns around trade policies, protectionist policies, and how they might dampen a little emerging markets, in general we are still supportive, albeit they can still be volatile,” says Kenny.

Bond investors need to tread carefully. While they may have enjoyed “phenomenal returns” as Quigley sees it, in recent years, rising bond yields, on the back of growing inflation expectations, might not be good for investors.

Many commentators now refer to bonds as offering “return free risk”.

“If you’re just holding bonds as a perceived safe asset, and are more interested in steady returns and capital preservation, then you would want to be very careful in reviewing your investments,” Kenny says.

With an interest rate rises in the US last week and more of the same expected, bond yields are likely to widen. And as bond yields widen, prices fall, which means that some investors should maybe think about selling up.

“I would encourage anyone invested in that asset class to review their position; they’re very comfortable because they’ve done so well for so long but it won’t be like that in the future,” Quigley cautions.

THE BEST – AND WORST – PERFORMING FUNDS OF 2016

Eurozone equities

Best: Friends First KBI Euroland High Yield Eq (+6.3%)

Worst: Zurich Life Threadneedle European Select (-2.7%)

Emerging markets equities

Best: Irish Life Indexed Emerging Market Equity (+21.2%)

Worst: BOI Life - Unit Funds Far East Equity (-2.8%)

Tech equities

Best: Irish Life Indexed Tech (+13%)

Worst: Zurich Life TopTech (+11.5%)

Property

Best: Irish Life Property (+4.3%)

Worst: Friends First Insight Property (-15.7%)

Structured products

Best: Irish Life Securescope (+2%)

Worst: Friends First Protected Equity (-1%)

Money market

Best: Zurich Life Secure (0%)

Worst: Acorn Life Deposit (-0.43%)

UK equity

Best: Irish Life Indexed UK (+7%)

Worst: SL Synergy UK Smaller Companies (-11.7%)

Ethical equities

Best: New Ireland Ethical Equity (+20%)

Worst: Prescient Ethical (-4.6%)

North America equities

Best: New Ireland North American (+27%)

Worst: Standard Life Prosperity North America Equity (+7%)

Irish equities

Best: New Ireland Irish Equity (+5%)

Worst: Ulster Bank Secure ISEQ (-9.1%)

Government bonds

Best: Irish Life Pension Stability (+2.8%)

Worst: BOI Life - Smart Funds 2007 Gilt (-1.3%)

Source: Moneymate