Zero to hero – the funds that turned things around

In the world of investments, nothing is guaranteed and, unfortunately, the value of our holdings can go down as well as up. As we say time and again, all fund managers – no matter how good they are – will go through a period of underperformance.

But it’s important for investors to understand why a fund is underperforming and, in some cases, stick by the manager. Maybe the asset class or style of investing is out of favour, for example. Good managers will usually be able to turn things around.

Here we take a quick look at five managers who have done exactly that.

1. Legg Mason IF Japan Equity

This is a super-aggressive small cap Japanese growth fund that is on the Chelsea Selection, had a bad time of it just before the global financial crisis. Between January 2006 and August 2008 the fund drifted lower losing more than 75% of its value*. But the manager turned things around and, since then, the fund is up 1,018% - crushing the benchmark and all of its peers, the average of which has returned just 184%**.

2. Allianz Strategic Bond

Mike Riddell took over and re-designed this fund in late 2015. For the first three years it returned just 4% and was well behind the average peer which returned 9%***. However, the fund was always designed to be very different to those peers. Performance in 2019 really came good and it was one of very few funds to make money during the Covid sell-off returning almost 9% while the average strategic bond fund fell almost 9%^. The manager then followed this up by making money in the recovery as well.

3. Rathbone Income

Having gone through an extremely tough period during the global financial crisis back in 2008, when the fund fell around 50%^^ compared to a sector average of 44%^^, Carl Stick, Manager of Rathbone Income fund, which is on the Chelsea Core Selection, tweaked his investment process to try to ensure that would not happen again. Over the past decade or so, the fund has been less volatile than the sector average and maximum drawdown has been lower. It has returned 252%^^^ compared with a sector average return of 208%^^^ and raised its dividend in 19 of the past 21 years.

4. Ninety One Global Special Situations

Up 52% since the first vaccine announcements in October last year and 5th out of 438 funds, the average of which returned 16%*^, this deep value fund had been one of the worst performing in the sell off. On the Chelsea Selection, we also hold the fund in some of the VT Chelsea Managed funds to balance our style risk. While it still has some way to go before it makes up all its relative losses, if the last few months have taught us anything, it's that it's important to have a diversified portfolio in terms of style as well as asset and geography.

5. JOHCM UK Dynamic

At the start of COVID manager Alex Savvides had a large allocation of the fund in domestically-orientated, service-led companies, which hurt performance. But he spent a huge amount of time during the crisis assessing each company in the portfolio, supporting equity raises where he saw value, and exiting where he didn’t see the prospect of a recovery. Now the market has become more optimistic about reopening, it has re-evaluated many of the businesses he owns, and the fund has recovered almost all of the ground it lost in the sell-off. The fund is on the Chelsea Core Selection.

*Source: FE fundinfo, total returns in sterling, 31 December 2005 to 31 July 2008

**Source: FE fundinfo, total returns in sterling, 31 July 2008 to 22 April 2021

***Source: FE fundinfo, total returns in sterling, 30 November 2015 to 30 November 2018

^Source: FE fundinfo, total returns in sterling, 1 January to 23 March 2020

^^Source: FE fundinfo, total returns in sterling, 4 May 2007 to 17 March 2009

^^^Source: FE fundinfo, total returns in sterling, 17 March 2009 to 26 April 2021

*^Source: FE fundinfo, total returns in sterling, 1 October 2020 to 22 April 2021

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author do not constitute financial advice.

Published on 26/04/2021