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Sunday 23 October 2016

The five worst, and best, performing funds since Brexit

Investors in British property have been hit by the vote but Chinese shares are up, says Louise McBride

Published 25/09/2016 | 02:30

Chinese equities have been having a bumpy ride since April 2015
Chinese equities have been having a bumpy ride since April 2015

Investors in British property funds have been the worst hit since Brexit while investors in Chinese shares - which were ironically taking a battering this time last year - have done well.

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These are some of the findings of an analysis by this paper where we teamed up with the international stock market experts Morningstar and Irish stockbrokers, Davy, to track down some of the best - and worst - performing investment funds since Britain voted to leave the European Union.

To make the findings of our analysis more relevant to Irish investors, Davy and Morningstar converted the returns made by funds into euro - where the base currency of the fund was not the euro.

So three months on from Brexit, which funds have lost or won most money for investors?


Carnegie Global Healthcare 1A

Up 24pc

This fund invests in the shares of international healthcare companies - primarily, small-cap companies with a market capitalisation of less than $1bn. "These small-cap healthcare stocks have significantly outperformed their larger-cap counterparts over the last few months," says Keith Williamson, an investment analyst with Davy Private Clients. "The larger pharma names are suffering under the political spotlight and the continued drugs price scandal in the US."

US Global Investors World Precious Minerals

Up 20pc

This fund largely invests in companies which explore, mine or process precious minerals such as gold, silver, platinum, palladium and diamonds. Its large exposure to Canadian and Australian resource companies is one of the reasons it has done well - as these companies have broadly performed better than their US counterparts, according to Williamson.

China Southern Dragon Dynamic Fund

Up 19pc

This fund, which invests primarily in Chinese and Hong Kong shares, has got a boost from the recovery on Chinese stock markets in recent months. China's stock markets have performed well since June - although some experts believe there is limited scope for further gains in Chinese shares.

Another reason this fund has done well is its exposure to consumer discretionary stocks (shares in businesses that sell non-essential goods and services, such as luxury handbags and watches, top-of-the-range cars, clothes, travel and movies) - many of which have gone up in value in recent months - particularly automobile, media, and some individual tech shares, according to Williamson.

Robeco Chinese Equities D EUR Acc

Up 17pc

This fund largely invests in the shares of companies which are based - or which conduct a lot of business - in China. The strong performance of this fund is largely due to the recovery in Chinese equities since Brexit, according to Ronald van Genderen, fund analyst with Morningstar. "Chinese equities have been having a bumpy ride since April 2015," says van Genderen. "They only started to recover in February of this year. This recovery accelerated just after Brexit."

Henderson Horizon China A1 USD Inc

Up 17pc

This fund invests most of its money in securities listed in China, Hong Kong and Taiwan. So it too was well placed to benefit from the uplift on the Chinese stock market. Its portfolio manager Charlie Awdry feels that Brexit may encourage global investors to turn back towards Asia - because of the uncertainty generated by Brexit in Europe. However, this fund is exposed to Hong Kong stock markets - which have been volatile over the summer.


Aberdeen Property Share A

Down 15pc

This fund invests largely in the shares of companies which make money from British property. It is a sterling-based fund and this is one of the reasons it has performed so poorly since Brexit, according to Brian O'Reilly, head of global investment strategy at Davy Private Clients.

"The fall in sterling has had a big impact on whether a fund has done well or poorly," says O'Reilly. "Many of the funds which have performed poorly since Brexit are sterling related funds." This fund's exposure to British real estate is another reason it has lost money. "The companies that have suffered most since Brexit are British real estate companies because of concerns that a lot more money could be exiting that market with Brexit," explains Ben Yearsley, investment director with Wealth Club, a British-based investment advisors.

Argo Pan European Alpha I EUR Acc

Down 14pc

This fund invests in the stocks of between 30 and 50 European companies, including British ones. Before Brexit, it had invested a lot of money in consumer cyclical stocks, according to Samuel Meakin, investment research analyst with Morningstar. These stocks typically do well when consumers are confident about their finances and happy to spend money - but the opposite arose when the Brexit referendum was passed.

"Consumer discretionary stocks were affected by fears that Britain's decision to leave the EU would precipitate a recession," explains Meakin. "This fund also had underweight [less exposure than normal] positions in more defensive sectors like consumer staples, which fared better amid the uncertainty created by the referendum - as investors sought the perceived safety of such areas of the market."

Schroder ISF European Eq (Ex UK) A£H Inc

Down 13pc

Many European shares have taken a hit in recent months - because of the uncertainty triggered by Brexit. This uneasiness will have affected this Schroder fund as it puts most of its money into the shares of large or mid-sized European companies (apart from British ones).

"European equities took heavy losses following the Brexit vote as the market started to extrapolate the result into the possibility of a breakup of the European Union," says O'Reilly.

Jupiter UK Growth Fund

Down 12pc

"Many of the worst performing funds since Brexit were invested in small and mid-sized British companies," says O'Reilly. This fund has exposure to that sector as it largely invests in British companies, including Dixons Carphone and Talk Talk Telecom.

Barclays UK Lower Cap A Acc

Down 11pc

This fund invests in lower-cap companies (typically, small companies listed on the stock exchange) that are based in, or have significant operations, in Britain.

"This fund was hit hard as it is heavily exposed to more domestically-focused British companies that fell - given investor expectations that the British economy will suffer from Brexit," says O'Reilly. Ironically, many of the large British companies with a strong international exposure have done well since Brexit, according to O'Reilly.

"The FTSE 100 [an index made up of the largest 100 companies listed on the London Stock Exchange] did well following the Brexit vote - the main reason for this is that the majority of companies in the FTSE 100 earn their profits overseas so a weaker sterling will help them compete for business overseas," explains O'Reilly. "However, the more domestically focused FTSE 250 did much worse - falling 14pc in the days following the vote."

Going forward

It's early days with Brexit and it will take years for it to play out - and to see which investments will be worst hit.

"Specific assets such as British property could be hit by falling property prices as companies look to relocate to other locations in Europe," says O'Reilly. "There is a lot of supply due to come on stream in London. We are already hearing of firms looking in Dublin for property space as part of a contingency plan if they lose their European passporting rights."

Should you have Irish shares, bear in mind that companies with a lot of exposure to the British economy - or which depend on British tourists spending money here, could lose money on the back of Brexit. The shares of the Irish Ferries operator, ICG, for example have fallen sharply since Brexit. So too have the shares of the DIY group, Grafton, which is listed on the London Stock Exchange and which has operations in Britain. "There are concerns that Brexit could see fewer British tourists either travelling to Ireland on the ferry - or staying in hotels here," says Gerard Moore, head of research with Investec.

The share price of some of the Irish REITs, including the Irish Residential Properties REIT and Hibernia REIT, have done well since Brexit. "A small amount of these [share price] gains may be coming from the view that Dublin will benefit from additional demand for property here if British firms and employees move here," says Moore.

Infrastructure funds such as the First State Global Listed Infrastructure fund, as well as the shares of companies like CRH and Kingspan, may perform strongly as Brexit progresses, according to O'Reilly.

"Brexit was yet another example of an anti-establishment vote," says O'Reilly. "As a result, I think you will see politicians starting to spend public money again. There are ambitious infrastructure projects under way worldwide. The companies that stand to benefit the most from this will have the capabilities to build everything from roads, bridges, airports, ports, railroads, water infrastructure, social housing, to schools and hospitals."

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