This time last year, the world was a fairly bleak place. While Covid restrictions were easing in the UK, the economy had taken a colossal hit, and many of us were suffering from a loss of income. Stock markets had plunged in the immediate wake of the pandemic but eventually picked back up again around the world. The technology sector, in particular, did very well.
Hindsight is a wonderful thing. So many of us are now left wishing we had invested earlier in 2020 to enjoy some fantastic returns. But what of 2021? How have stock markets fared this year? And what about UK investment funds? Which ones have performed well? And what investments look like they may offer true potential?
Here are the best performing funds of this year based on some excellent research by AJ Bell at Youinvest. Their research highlighted some trends that could continue to be an interesting investment case in the near to mid future if the UK economy continues along a similar vein.
Best performing funds of 2021 so far
Without a doubt, the overriding trend that underlines the best performing funds in 2021 so far is that UK small-cap stocks have had excellent returns. That is reflected in the high return that the FTSE Small Cap enjoyed, which came in at 19.4%. In fact, the index has consistently returned record highs this year and is now 20% higher than it was before the pandemic. That's pretty incredible if you think about it. That's not 20% higher than where it was at the worst point of the pandemic. That's 20% higher than if the pandemic had not troubled markets at all.
Arguably the reason being is that FTSE Small Cap stocks are far more exposed to the UK market than their larger blue-chip siblings. As they are not as internationally run, their revenue stream comes from mainly UK custom. That essentially means that when the UK economy is doing well, the FTSE Small Cap should do better than the FTSE 100. In that index, companies are more exposed to how the global economy is faring. 2021 has seen the UK economy starting to bounce back - hence the leap in the FTSE Small Cap. The real question is whether investors will continue to back that horse?
Some would say a definite yes - for now. The UK economy has enjoyed a quick upswing thanks to the success of its vaccine rollout. It is excellent that so much of the population has been jabbed. However, the jury is still out on how much difference those vaccinations will make to daily life. Nevertheless, the initial data looks good. Even when the number of Covid cases is massively increasing, the proportion of hospitalisations and deaths has not followed like in earlier peaks when the vaccination scheme had not started. That should mean life can return to some level of normalcy with productivity being able to rise. Bearing that backdrop in mind, here are the best performing funds of 2021.
CCM - Intelligent Wealth: H1 return 33.1%
The CCM Intelligent Wealth Fund invests in a diversified portfolio that includes equities, bonds, cash and other money market instruments. Its equities can be held in ETFs or other collective investment schemes. When it invests directly in equities, it does so into stocks that the fund believes will have the ability to disrupt the marketplace. While it has no specific geographic focus, it currently holds over a third of its portfolio value in UK equities.
Consistent - Opportunities: H1 return 32.6%
The Consistent Opportunities Unit Trust Fund aims to provide both long term capital and income growth. It does so by targeting equities, though there is no restriction on where they need to be based. That said, it currently holds over 93% of its value in UK equities.
Guinness - Global Energy: H1 return 32.3%
Like the Consistent Opportunities Fund, the Guinness Global Energy Fund aims to provide long-term capital growth. It does so by targeting companies within the energy industry. That can include a broad range of businesses; as long as the company is engaged in exploration, distribution or production of energy sources, the fund can invest in it. It believes that energy investment offers a good potential given how energy demand will increase with an ever-growing global population.
Aberforth - UK Small Companies: H1 return 32%
Imaginatively named, the Aberforth UK Small Companies targets small UK quoted businesses. Currently, its most significant holdings are in Reach Plc and Redde Northgate. Reach is a national and regional news publisher, while Redde Northgate is a car and motor insurance agency.
Liontrust - UK Micro Cap: H1 return 31.2%
Liontrust's UK Micro Cap fund takes a long term view of the UK market. In terms of sectors that this fund is currently holding, its largest sector bet is in technology. The fund currently holds almost 30% of its value in technology, with industrials coming in at 18% and financials coming at 17%. Its largest individual holding is currently Cerillion which is a UK based software company. Coming in closely behind it is Gateley - a legal and professional services group.
Investment themes for the rest of 2021
While knowing what has performed well in 2021 can help you understand the market, how can you identify good places to put cash in in the future? Again, taking a thematic approach to help inform specific stock selections or broader fund investments can be helpful. Here are some themes to consider when weighing up potential investments on your radar.
The impact of humans on the world has an enormous effect on climate change. You would have to live under a rock not to know that. But, people are increasingly looking for more sustainable and ethical ways to live. That means that investing in companies that are run sustainably or provide a sustainable means of living may offer some exciting investment potential.
Perhaps something that we can all rely on in the future is that the number of people living on earth will continue to rise. That has implications on what is demanded by that population and by how much. For example, where will those people live? What will an ageing population demand from healthcare? How will everyone travel? What businesses will respond best to those demands?
Technology has revolutionised our lives. But that is still a development being played out. Consider how much your usage of your mobile has changed over the last five to ten years. Then think about all the items in your home that are now ‘smart’. The likelihood is that that theme will continue in the near, mid and distant future. As a result, what companies look set to make the most of that?
The pandemic has seen an eye-watering amount of state intervention. And, while many companies are currently enjoying a rebound, they are still being massively supported by the Government. While that looks set to continue for the foreseeable future, how will that impact a longer-term investment horizon? What happens when the large amounts of debt on Government books becomes far more expensive to service? What effect will that have on companies around the world? Which ones will thrive? And which ones will barely survive?
Thinking of investing? What to bear in mind
While the above best performing funds of 2021 could continue to see significant gains, they might not. For that reason, you must invest with your risk profile in mind. Doing so will ensure that you invest in a manner that is appropriate for your circumstances.
It could be that you are happy to take risks but are not quite in a financial position to take on a significant level of risk. Given that investments can fall and rise, it is critical only to invest what you are happy to lose. Or, to look at it another way, what you can afford to lose without affecting your current retirement timeline or quality of life.
Investing in 2021
Investing in 2021 offers some great potential to grow the value of your nest eggs or pension pots. Those nest eggs may well have increased in cash value more than you would have thought at the beginning of 2020, given that we weren't able to spend much of our income. Lockdowns helped many households save more than they ever have before.
Using that cash as a springboard to further improve your financial health is a great idea. Investing is a way to see significant returns. However, remember that paying down high interest-bearing debt may also be a good option for you. As ever, where possible, seek the help of a financial investment professional who can take your specific circumstances into account when planning out your financial future.