Funds Premier League 2015: wholesale changes after turbulent summer

Among the 15 funds selected for the Premier League squad in Money Observer's previous quarterly review, only four have made it through to the new season, underlining the volatility seen throughout global markets over the summer.

These stalwarts are Old Mutual Global Equity, Templeton Emerging Markets Smaller Companies, Royal London Sustainable World and Majedie UK Income, all of which have proved their worth as top players in the all-star fund league.

Old Mutual Global Equity is the only fund to have appeared in the magazine's previous annual review in November last year.

As major indices - including the MSCI World, FTSE All-Share and, more significantly, China's Hang Seng - all shed between 7 and 21% in the three months to 31 August, the Premier League players have held up well, mitigating losses and in two cases even recording gains.

Best performers

Franklin UK Smaller Companies was the best of our league players over the period, returning 0.8%, compared with average losses of 0.6% from its sector and nearly 3% from its benchmark.

This reflects a strong period for UK smaller companies, which were buoyed by a surprise Conservative Party win in May's General Election that put an end to a 12-month losing streak for the sector.

Lindsell Train Japanese Equity also recorded a marginally positive gain over the three months to 31 August, compared with a loss of more than 6% from the average Japan fund.

The fund delivered the best total return in our squad over three years to 31 August (121%), as Japan enjoyed a long-overdue economic bounce under the leadership of its reformist prime minister, Shinzo Abe. Its well-timed currency hedges have also paid off.

Chinese quake

The worst performers over the quarter to the end of August were in the Asia and global emerging markets sectors - an unsurprising result considering China's spectacular stockmarket tumble over the summer.

After registering stratospheric gains of close to 180% in the 12 months to early June, China's domestic equity index - the Shanghai Composite - plummeted by as much as 30% in around six weeks.

This culminated in what has become known as "Black Monday" on 24 August, when a near 8% fall in the Shanghai Composite pushed stockmarkets all over the globe into the red.

Accordingly, despite retaining its place in the league for two consecutive quarters, Templeton Emerging Markets Smaller Companies - which has close to 60% of its portfolio invested in Asia - became the worst performer, shedding more than 14% in the three months to 31 August.

It was followed by JOHCM Asia ex Japan Small and Mid-Cap, which lost more than 11% over the period - although this still left it third in a sector of nearly 100 funds, while over three years it was the best performer in its sector, with a return of nearly 50%.

With global stockmarket volatility still fairly high, it is difficult to predict the winners and losers over the next three months, but this Premier League squad will have to work hard to hold their places.

The survival of only four funds from the last quarterly review and just one from the previous annual review demonstrates there is no guarantee that the relatively strong, consistent performance highlighted in the league is repeatable in turbulent market conditions such as were seen this summer.

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Premier League methodology

Money Observer's Premier League aims to highlight and celebrate the best-performing open-ended fund and manager from each of the Investment Association's 15 most popular fund sectors.

To gain a place in the league, a fund must have consistently outperformed the funds in its sector in each of the past three years, have had the same manager at the helm throughout that period and have more than £10 million of assets under management.

To assess performance, Money Observer looks at a fund's total returns over three years and at its average decile ranking over 30 rolling six-month periods over the same time frame. Winners are the funds delivering strong but, crucially, consistent returns.

Funds that meet all of the above criteria may still not make the league if they are soft- or hard-closed to new investors, impose large initial charges, are not widely available to buy or are too niche to represent their sectors.

In each of the magazine's quarterly reviews, a fund's most recent one-year return must be in the first or second quartile of its sector.

Sectors which have been excluded include the targeted absolute return sector - due to the wide variety of regions and asset classes it represents, which we do not feel lend themselves to fair comparison - and the global emerging markets bond, mixed-investment 0 to 35% shares and global equity income sectors, because of the relatively small number of funds in each.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.