Winter Investment Outlook

Q4 2016 Performance Summary

The market maintained its positive momentum in the fourth quarter with the FTSE All Share making gains of 3.9%. Oil was the biggest riser at 21.8%, followed closely by financials’ outperformance of 20.6%. Energy delivered returns in excess of 13%, with sectors such as US equities, materials and industrials clear beneficiaries of Trump’s US election success. Fixed income continued to struggle with most sub-sectors in negative territory. Gold was the biggest casualty over the quarter with losses of 8.2%.

Our Recommended Funds list generally reflected this positive market sentiment with 77% of the 61 funds making gains over the quarter. Legg Mason IF Royce US Smaller Companies headed the list with a return of 19.9%. Man GLG Japan Core Alpha, Guinness Global Energy, H2O Multireturns, Polar Capital Global Insurance and Investec UK Special Situations were other notable performers, part of a group of 10 funds delivering returns in excess of 10%.

In addition to producing the quarter’s top performing fund, the US equities sector rode the crest of the wave of US pro-growth investor optimism. JPM US Equity Income, Old Mutual North American Equity, Schroder US Mid Cap and HSBC American Index all delivered double-digit returns, with Legg Mason ClearBridge US Aggressive Growth up almost 6%. At the other end of the spectrum, BlackRock Gold & General delivered losses of 13.8% as gold suffered from an increased appetite in investment risk. Nevertheless, this fund was still the top performer for 2016 as a whole.

Overall 63% of the funds in our Recommended List produced first or second quartile performance over the quarter.

Investing across different asset classes and geographies remains a key component in building a fully diversified portfolio. We ensure our Recommended Funds list comprehensively represents skilled fund managers noted for their active investment strategies across a broad range of asset classes.

As we have previously stressed, considering performance numbers from one quarter in isolation does not paint a full picture. These figures should always be considered from an investment perspective in the context of your long-term goals.

Long-Term Performance Summary

In considering the 54 funds in our Recommended Funds list with a five year track record, only two funds have delivered a negative absolute return over this period. A 61.8% return was delivered by the FTSE All Share index over this time frame, a figure bettered by 32 of these funds covering a diverse array of asset classes.

Over the five year period to 31 December 2016, Old Mutual North American Equity secured the top spot with a return of 162.5%. A return of at least 100% on a five year investment would also have been achievable in the following funds: Liontrust UK Smaller Companies, Schroder US Mid Cap, HSBC American Index, JPM US Equity Income, Henderson Global Technology, Artemis Global Income, Baillie Gifford International, Man GLG Japan Core Alpha, JOHCM UK Dynamic, Royal London UK Equity Income, Franklin UK Mid Cap, First State Global Listed Infrastructure, Invesco Perpetual Global Smaller Companies and Henderson European Selected Opportunities.

US funds continue to dominate at the top of the list, as one of the longest S&P 500 bull runs in history means they fill four of the top five positions. Over this five year period, UK, European and global funds are also notable for their strong returns. Our Recommended List also contains some more specialist funds and within this area, infrastructure, sustainability and technology funds outperformed the FTSE All Share over five years.

Over the five years 69% of the funds outperformed their respective benchmarks and 77% were either first or second quartile in their sector.

First State Global Resources and BlackRock Gold & General are the only two funds delivering a negative return over this five year period. Both of these funds have suffered from depressed commodity prices in recent years. However, the picture is completely transformed when considering 2016 in isolation as these two funds are at the top of the performance list. Commodity prices are starting to firm up and the BlackRock fund’s 12 month performance has weathered recent safe haven outflows into riskier asset classes. 

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Past performance is not a reliable indicator of future results
Source: Morningstar Direct as at 31 December 2016.

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Important Information

The information we provide in this Investment Outlook are opinions provided by TD Direct Investing or one of its partners on whether to buy a specific investment. None of the opinions we provide are a personal recommendation, 

Investors should be aware that the value of investments can fall as well as rise, you may get back less than you invested. Past performance is not an indication of future performance. If you are unsure about the suitability of a particular investment you should speak to a suitably qualified financial adviser.