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Adviser Fund Index

Returns from the Adviser Fund Index aggressive portfolio have been driven by developed market smaller companies over the last six months.

Of the top 10 funds by performance over the six months to April 5, three come from the Investment Management Association UK smaller companies sector. Top of the list is Marlborough special situations, managed by Giles Hargreave, which invests in smaller companies, new issues and companies facing difficulties.

Some panellists are far from surprised by the performance of the sector since markets turned in 2009. “Given what we saw during the crisis, a sharp recovery was to be expected in smaller companies,” says Ben Willis, head of research at Whitechurch Securities. “It has been volatile at times but the markets have tended to be able to shrug off bad news so far.”

There are plenty of reasons to be cautious, however. With consumer price index inflation at 4.4 per cent, due largely to the inexorable rise in commodity prices, input costs are rising, putting pressure on domestic-facing companies.

There will also be beneficiaries if inflation pressures linger. Another of the AFI aggressive portfolio’s top performers was the JP Morgan natural resources fund. The fund has returned 24.48 per cent over the past year.

The past six months have favoured smaller companies and resources but have been less kind to emerging markets and bonds in the aggressive index. Bottom of the table is Jupiter India, which dropped by 7.22 per cent, while Martin Currie China is also in the bottom 10 after falling by 0.81 per cent.

Overall, the IMA global emerging markets sector returned 5.53 per cent over the six months against a 15.75 per cent average return from the IMA UK smaller companies sector.

It is interesting to note returns have not been driven by any one theme in recent years. Over the past three years, global emerging market funds returned an average of 30.46 per cent while the average UK smaller companies fund returned 27.68 per cent. Over five years, the figures are 64.38 per cent and 23.51 per cent respectively.

Despite the apparent divergence in economic growth rates between advanced and emerging economies, ignoring developed markets in their entirety at the November rebalancing last year would have cost panellists.

As the May rebalancing approaches, there is much to consider. On the macroeconomic side, problems in the economies of peripheral eurozone countries continue to complicate matters for policymakers, while the outcomes of popular uprisings in the Middle East and North Africa are far from resolved.

Willis is not planning any major changes to his positions in the AFI aggressive portfolio. He says: “Smaller companies did surprise us with their performance last year but perhaps they will surprise us this year as well.”



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