Wednesday, February 28, 2024

The Best and Worst Performing UK Funds of 2023

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In true January fashion, we are rounding up the best and worst performing funds of 2023 – a year that was largely good for markets. The unexpected artificial intelligence boom, spearheaded by OpenAI’s release of ChatGPT, was perhaps the biggest trend of the year. At the other end of the spectrum, China finally emerged from Covid-19 lockdowns, but the expected economic boom did not materialise (again).

With the surge of interest in AI stocks and the performance of the ‘Magnificent Seven’, funds with a pure tech focus in the Morningstar category Sector Equity Technology won the year, averaging a return of 31%. US Large-Cap Growth Equity, which has a large exposure to the same stocks, was close behind with an average of 27%.

But it wasn’t just the tech funds that did well last year. Of the circa 3,200 funds in our dataset of rated funds available for sale to UK investors, only about 300 saw losses.

The largest categories, mainly allocation strategies of different blends, all provided returns between 5-10% for its investors.

At the bottom end, the three categories with the worst average returns all invest in China. Both China Equity – A Shares and China Equity fell more than 20% on average, and funds in the Greater China Equity category averaged a loss of 15%. A large portion of the funds saw losses are focused on Asia, but also thematic equity categories like Infrastructure, Natural Resources, Agriculture and Healthcare struggled to make gains.

Best Performing Funds in 2023

At the individual fund level, the fund with the best return in 2023 was Nikko AM ARK Disruptive Innovation. It is a European version of Cathie Wood’s famous ARK Innovation ETF (which had a torrid 2022) and is advised by ARK Investment Management – and we’ve talked about the strategy multiple times this year as it’s moved between best and worst over the monthly updates (top in November and bottom in October, for example). The fund ended the year with a return of 59%, only just edging out Liontrust Global Technology. It’s unusual to see a fund with a Negative rating to top the fund charts.

Only two of the best performing 10 weren’t pure technology funds: Nikko AM ARK and PGIM Jennison US Growth, which belong in US Flex-Cap Equity and US Large Cap Growth Equity categories, respectively. We have to look down to 38th place to find a fund that isn’t tech or US-focused though. There, we find Jupiter India Select with a 2023 return of 32%. This is a notable return as the National Stock Exchange of India surpassed Hong Kong in market cap terms to become the seventh largest stock market in the world.

Ben Yearsley, director at Fairview Investing, says: “I don’t think many thought tech would be the standout performer of 2023 – I certainly didn’t.

“In what was a surprise to many, the never never rally of a few years ago has reappeared with Nasdaq reaching an all-time high. This happened despite 5% interest rates.”

Worst Performing Funds in 2023

As we’ve already seen, Chinese equity categories certainly struggled this past year, and none more than abrdn China A Share Equity with its 29% loss. That said, all the bottom 10 funds lost more than 25%, and the bottom 40 (all various Chinese equity funds) all lost 20% or more. We have to look to the 41st worst performer to find our first non-China strategy: WS Amati Strategic Metals, a natural resources fund which also lost around 20%.

 

Best and Worst Performing Funds in December

We finish off with a summary of the best and worst funds in December, a month where many markets saw a “Santa rally”. The tables aren’t too dissimilar from the overall year, but instead of tech, the table is topped by biotech and small-caps. Pictet-Biotech returned 18% over the month, taking the lead in front of two other funds in the thematic Sector Equity Biotechnology category. Baillie Gifford Global Discovery, a small/mid-cap fund, returned 14%, but was the only December winner that still had a negative 2023 overall. Artemis US Smaller Companies returned 13% both in December overall in 2023.

China, again, had the worst December, albeit at a more modest level than the overall figures for the year. JSS Equity – All China and Templeton China had the worst month, both falling more than 5%. Two Gold-rated funds also feature here: FSSA All China and Wellington All-China Focus Equity, down more than 4%.

We’ll be back at the start of February to take a look at how the first month of 2024 pans out.

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