Top at Christmas

Ironically, an industry that stresses the importance of the long term still likes studying short-term performance tables. So it is that at this time of year, we see a slew of rankings of how collective investment funds have performed over the previous 12 months. For investors buying and holding funds for five or 10 years, say, these tables need to be treated with something of a pinch of salt – but that doesn’t stop people pouring over them.

So which investment companies performed best during 2017? Well, looking at two separate rankings of closed-ended funds this week, published by the fund data analyst Morningstar and Money Observer magazine (courtesy of FE Trustnet), two themes stand out.

The two rankings compiled their data in slightly different ways, but produced similar results: first, that funds with exposure to Asia performed very strongly, and second, that the global generalists can be an excellent way to secure strong returns from a broad-based portfolio of international equities.

The strength of the Asia specialists isn’t surprising in a year when stock markets in the region performed very strongly, with some leading Asian technology companies even seeing their share prices double.

The outperformance of the global growth sector, on the other hand, might be considered a little less expected. After all, this sector gives investors exposure to a diversified portfolio of stocks picked from around the world – in any given year you would expect a mix of relative winners and losers, with the latter dragging down overall performance relative to more specialist funds focused only on the best-performing markets.

That certainly hasn’t been the case at Independent Investment Trust, however, which appears in the top 10 funds lists compiled by both Morningstar and Money Observer. Nor at Scottish Mortgage, also on the Morningstar list, or Edinburgh Worldwide, high up in Money Observer’s rankings.

You might regard these funds’ stellar performance as offering investors an opportunity to have their cake and eat it. They appear to be getting global diversification from these investment companies, but with no requirement to sacrifice performance.

Naturally, there are some caveats to apply. This is a sector of the investment companies universe where the mandates under which managers operate vary a great deal and individual funds aren’t always entirely comparable. Independent Investment Trust is a case in point, with the manager running a high-conviction and relatively concentrated portfolio.

Nevertheless, for investors thinking about how to build international diversification into their portfolio, these figures make fascinating reading. The Global Growth sector provides a very obvious place to begin the hunt for holdings that could sit at the core of an investor’s portfolio, offering the potential for strong performance from a broad base – and a building block on to which more specialist holdings could be added.

It’s important not to get carried away. These are one-year figures generated in an exceptional year for global stock markets – such rankings may look very different in 12 months’ time. However, if we’re going to carry on publishing annual reviews of fund performance, we should attempt to extract some insight from them. This year, the lesson is that broad-based international investment companies could be a valuable core portfolio holding.