Revealed – The top 10 best-performing funds
Published 02/02/2014 | 02:30
Savers have been hit with a double whammy of hefty tax and dismal returns so far this year. Not only are the banks paying a paltry amount of interest on deposit accounts, since the start of 2014, savers have been losing more than two-fifths of the interest earned on their nest eggs to tax.
If you've had enough of crippling savings tax and measly deposit interest rates, you might be considering moving your savings into an investment fund.
The Sunday Independent teamed up with international stock market analysts Morningstar and some Irish stockbrokers to track down 10 of the best performing investment funds over the past year:
CC Japan Alpha Eur
- Up 69 per cent
This fund, which invests in Japanese equities and is managed by Asian fund manager Coupland Cardiff, was one of the best performing last year.
Japanese shares had a record year in 2013 – its main stock market, the Nikkei Index, surged by almost 60 per cent. This is one of the reasons that the CC Japan Alpha fund did so well.
"Given the Japanese stock market remains cheap on a price-to-book value basis, the odds of further decent returns over the medium term from this equity market are high," says Rory Gillen, of GillenMarkets.com. "But as a weaker yen is central to Japan's economic turnaround, if you wish to capture the upside in Japanese equities while avoiding ongoing currency weakness you might look for a fund that hedges the yen back to euros."
If you're considering investing in the CC Japan Alpha fund, don't expect it to continue to deliver returns of 69 per cent every year. The annualised return over the past five years has been about 15 per cent. Many, including Standard Life, are still tipping Japanese shares this year. However, a lot will depend on how successful Japanese prime minister Shinzo Abe is in driving forward his economic policy.
Polar Capital Healthcare Opps USD
- Up 65 per cent
Managed by Polar Capital, this fund largely invests in US healthcare companies. "One of the key drivers for global returns in 2013 was the US as the Standard & Poor 500 Index closed above 1,800 for the first time ever and investors were rewarded with returns of 32 per cent," says James Costello of Davy. "Most of the US funds which did well were also pharmaceutical and biotech funds."
Guinness Alternative Energy D
- Up 64 per cent
This fund, managed by Guinness Asset Management, invests in solar energy, wind power, biofuels and other types of alternative energy. Its return over the past five years hasn't been as strong as it was in 2013. The global and European economic recovery could, however, bode well for this fund over the next few years.
"Alternative energy stocks have increased hugely in value in 2013, particularly solar stocks," says Jude O'Reilly of Goodbody Stockbrokers.
Legg Mason Capital Management Opportunity A Inc (A) $
- Up 63 per cent
Managed by Legg Mason Global Funds, it invests in equity securities, debt securities, derivatives and other financial instruments. It invests heavily in US-based companies, so the strong performance of US equities over the past year will have helped to boost its value.
Waverton European A Eur
- Up 61 per cent
This fund, managed by Waverton Investment Funds, invests in the shares of large European companies that are listed on developed European stock markets. It has performed strongly over the past five years, delivering an annualised return of about 22 per cent. Last year's 61 per cent gain is likely down to the recovery in Europe – stock markets in western Europe did quite well over the past year.
Invesco Nippon Small/Mid Cap Eq l
- Up 60 per cent
Managed by Invesco Management, this largely invests in Japanese SMEs. The economic recovery in Japan is at the heart of its strong performance over the past year. "As you come into economic recovery, smaller companies tend to do better," says O'Reilly. Another similar Invesco fund, the Nippon Small/Mid Cap Eq E fund, also did quite well last year. If the yen gets stronger over the next year, this could adversely impact the performance of these funds. "The weakening of the currency is a huge competitive advantage for Japanese exporters," says Vincent Digby of Impartial. "However, if the yen turns around this year, Japanese exporters that have done well will suffer."
Ashmore EMM Middle East B
- Up 60 per cent
Managed by Ashmore Equities Investment Management, this invests in the shares of companies that trade in Middle East securities markets. Gulf stock markets did well over the past year, with Dubai, Kuwait and Saudi Arabia among the best performers. Many fund managers expect the momentum to continue in Middle Eastern stock markets this year.
- Up 58 per cent
Managed by Deka International, it invests in the biotechnology sector. "Biotechnology is an area of the market which has done very well, so funds that invested in that area of the market have done well, too," says O'Reilly. The biotech index, which includes companies which specialise in biotechnology or pharmaceuticals, rose by about 60 per cent last year.
MS Algebris Global Financials UCITS B Eur
- Up 52 per cent
This fund, which invests in the shares and debt of financial services and real estate companies, is managed by Fundlogic SAS. It was set up in July 2011 when the European debt crisis was at its height – so it had a shaky start. It has delivered strong returns over the past two years, however – buoyed by opportunities in the global financial sector and the recovery in Europe.
Tiburon Taiko Eur
- Up 52 per cent
This fund, which is managed by Tiburon Partners, largely invests in Japanese shares – and this is one of the main reasons it has performed so well over the past year.
Wise to look at tax bill before investing
Remember past performance is no guarantee of future returns – and it is unwise to choose an investment based solely on performance over one year.
"You should always look under the bonnet of any fund you are considering investing in – not just in relation to the risk the manager might be taking and the size of the fund, but whether its inclusion in a portfolio is justified relative to your risk profile," said James Costello of Davy.
Before choosing an investment fund, understand exactly what kind of tax bill you'll be hit with on any money you make. The rate of tax you pay will depend on where the fund is domiciled (that is, originally based), whether or not the fund is authorised, and how the fund is structured.
Since the beginning of this year, a flat tax rate of 41 per cent must be paid on income or profits you make on an investment fund which is domiciled in Ireland. That same flat rate of tax will be paid on any money you make on funds domiciled in the EU, the European Economic Area (EEA) or the OECD – as long as those funds are authorised and the country has a double taxation agreement with Ireland.
However, if you're investing in an unregulated offshore fund which is domiciled in the EU, the EEA or the OECD, you must pay tax at your higher rate of income tax, PRSI and the universal social charge on any income you receive from the investment – even if Ireland has a double taxation agreement with the country where the fund is based. You must also pay 33 per cent capital gains tax on any profits you make when you sell the fund.
If investing in an offshore fund which is based outside the EU, the EEA or the OECD – but which is still in a country that Ireland has a double taxation agreement with – the amount of tax you pay will depend on whether or not you receive most of your income from the fund each year – or if the income is allowed to build up over time.
If the former, you must pay tax at your higher rate of income tax (as well as paying PRSI and the universal social charge) on any income you receive – and you must also pay 40 per cent capital gains tax on any profits you make when you sell the fund. If the latter, you are taxed at your higher rate of tax on any money you make when you sell your investment.
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