Small-cap focused UK funds and Chinese equity funds have been the big fund winners of 2017.
Top of the pile is Old Mutual UK Smaller Companies Focus, with returns of 46.5%, up to December 5.
“The fund has had an excellent year as have, perhaps surprisingly, UK smaller companies,” notes Adrian Lowcock, investment director at Architas. He argues that the manager Dan Nickols is a skilled stock picker and this is what has been driving performance this year.
“His stock selection skills are what has set him apart with successes such as Fevertree (FEVR), the trendy tonic water brand and Blue Prism Group (PRSM), the robotics process automation company – both significant holdings in the fund and strong performers this year.”
The fund is one of three UK small-cap focused funds in the top 10, with Polar Capital UK Absolute Equity in fourth place (up 45%) and Elite Webb Capital Smaller Companies Income & Growth sitting in sixth spot, boasting returns of 38.8%.
Chinese equity funds have also fared well over the year. Baillie Gifford Greater China was the second top performer in 2017, with returns of 45.2% and NB China Equity come third with 45.1%. Invesco PRC Equity, another China fund, came eighth, returning 36%.
As China transforms its economy from export-led model to a slower-paced economy fuelled by consumption, it faces many challenges: from environmental pollution to a lack of social services for its growing urban population.
However, the Chinese economy has been more resilient than expected this year, and has defied pundits who predicted that it would suffer a painful slowdown. At this year’s Communist Party’s national congress in October, President Xi Jinping continued to consolidate his power.
“The Baillie Gifford Greater China fund has benefitted from being in a strong performing sector,” says Lowcock. The fund has a focus on Chinese large caps and significant exposure to technology, According to Lowcock this has been the correct call in 2017.
He adds: “Chinese tech giants went from strength to strength as corporate earnings rose.”
According to Brian Dennehy, managing director of FundExpert this year has been “all about Asia and my own money remains on Asia.”
He adds: “Japan is still overlooked, but also look out for India gathering momentum again early in 2018, unless we get unexpected state election results.”
Darius McDermott, managing director of Chelsea Financial Services, cautions that on the back of a strong year for equity markets 2018 may well prove to be a more difficult year for investors.
He adds: “Looking forward to 2018, fundamentals seem positive, but valuations appear stretched and there are still a number of uncertainties on the horizon. Drip feeding into the market and remaining diversified remains a good option for investors.”
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