Written by: Hal Cook | Hargreaves Lansdown
- Some funds have had a very bad time recently
- Will we look back and think investing now was like picking up a bargain?
- If so, what are some potential options to consider
With the Black Friday sales coming up, here are five funds that have had challenging periods of performance, but that the analysis team continue to have conviction in.
There are times when funds face macro-economic or market headwinds outside of their control. Once these pass however, it can mean their performance improves again. One trend that has dominated the market in the last year is the underperformance of growth-style equities. This style got particularly hammered in the first few months of 2022. Growth-style investing means buying companies that you think have potential to grow at a quicker pace than the rest of the market. This often means you are looking at companies that have potential to increase revenues and profits way into the future. When interest rates expectations changed to the view that they were going to rise significantly, this had a particularly bad impact on these companies share prices. This meant a number of funds lost a lot of value, and lost it quickly. But these are not necessarily bad funds or bad fund managers, this was a market adjustment that was out of their hands. Therefore, there is potential for these funds to rebound once things calm down and future expectations on interest rates become clearer.
Smaller companies funds suffered a similar fate in 2022. This was due to higher costs of borrowing to fund growth and potential for weakened consumer demand due to inflation, higher debt repayments and a potential global recession. This is not unusual during difficult economic times because investors tend to flock toward bigger companies that have larger balance sheets and a perceived better chance of surviving any potential recession. But let’s be clear, there are still loads of very good smaller companies that will make it through the current challenges and come out stronger on the other side.
Finally, let’s look at bonds. Bonds have had a terrible year across the board. Yes, some have lost less value than others, but broadly, losses have been significant in all parts of the bond market. Investing in bond funds now means you can expect to be receiving a higher yield than you would have done 12 months ago. This not only gives you some income and a buffer if there are further capital losses from here, but it also gives rise to greater upside potential than the bond market has seen in years.
So, what are some potential options for investors from these beaten-up sectors?
1. Rathbone Global Opportunities. This has been a long-term success story under manager James Thomson, and since 2014, co-manager Sammy Dow. They are pure growth-style investors who have shifted their portfolio in 2022 for a higher inflation, higher interest rates world. They own some of the world’s best known companies and focus on investing in developed markets like the US, UK and Europe. Performance over the 12 months to end of October was -17.20%.
2. Barings European Select. The team managing this fund have a very strong long-term track record investing in smaller companies listed within Europe. Historically, investing in smaller companies within Europe has led to greater long-term returns than their larger counterparts too. Performance over the 12 months to end of October was -23.63%.
3. Baillie Gifford Managed. Growth-style investment house Baillie Gifford has had a very difficult year. This is a growth-style offering, which invests in mainly in company shares but also some of the fund is invested in bonds has delivered over the long-term however. Within the equities allocation, there is often a good amount invested in mid-sized companies which gives them even bigger growth potential. The team at Baillie Gifford have a long and successful track record of picking companies that do achieve outsized growth. Performance over the 12 months to end of October was -29.08%.
4. Jupiter Strategic Bond. A globally invested bond fund that has the freedom to invest across a large part of the bond universe. Ariel Bezalel has a very long track record of success and Harry Richards joined him on this fund in 2016. They often have a large part of the fund invested in higher yielding bonds, which have lower credit ratings. Performance over the 12 months to end of October was -16.51%. The fund has a distribution yield of 4.59% as at the end of October 2022.
5. Artemis Corporate Bond. Another globally invested bond fund but with a focus on bonds with better credit ratings as well as those issued by companies rather than governments. While the fund was only launched in October 2019, lead manager Stephen Snowden has a long and successful track record going back much longer than that at Aegon and Old Mutual. Performance over the 12 months to end of October was -17.23%. The fund has a yield to worst of 6.3% as at the end of October 2022.