Global stockmarkets have had yet another good year. I do not think that at the beginning of 2006 many people would have guessed that most global markets would have been this strong.
As usual, there is an exception to the rule, in this case Japan, which has had a diabolical year. Perhaps, in retrospect, this is no great surprise, given that 18 out of 22 commentators in the Daily Telegraph picked Japan as their stockmarket for the year. Generally speaking, any time you can find an investment consensus you should be a worried person.
Strength in most global stockmarkets has been reflected in the unit trust sectors. Many are sporting gains well in excess of 20 per cent and in some cases over 30 per cent.
I often find that investors write off their own stockmarket first. Perhaps this is based on the fact that they are so close to it and see the appalling mess that governments tend to make.
One group that had an outstanding 2006 – and for once is not a boutique – is Standard Life. Its unconstrained UK equity fund tops the UK all companies charts. A few places below is its UK opportunities fund. It also tops the UK smaller companies sector with its fund under Harry Nimmo. This fund is 5 per cent ahead of the second-placed fund from Old Mutual, which is no slouch in running smaller companies.
In the UK equity income sector, Standard Life high income is up by over 17 per cent and in a very respectable top-quartile position.
Turning to equity income, Neil Woodford takes the top two slots with his Invesco Perpetual high-income and income funds. His defensive portfolio has kept up with events, even though the UK economy has been stronger than he had expected.
But his performance is perhaps even more extraordinary given the sheer size of funds that he runs. It just goes to show that liquidity is not a problem to everyone.
The specialist sector is dominated by commercial property funds. It includes global real estate investment trusts, property shares and bricks and mortar. I confess I have been badly wrong on this sector for at least the last three years but do not expect me to change my mind as UK commercial property looks fully valued. The fact that it has become the biggest seller in the specialist sector worries me no end.
At the bottom of the table are all the healthcare and biotech funds. Perhaps it is here that we should look for leading funds over the next few years. They are unloved, unwanted and unfashionable, usually a good buying signal.
The top-performing fund in the specialist sector is Neptune’s Russia and greater Russia fund, from the country that I tipped at the beginning of the year and for which I remain relatively confident for 2007 too. Note that Neptune takes top slot in the Far East with its China fund. Indeed, it has had a very good year with a top slot in the European sector also.
In North America, the best funds have been CF US equity high yield, Greenwich accumulation and Melchior North American opportunities, all with big double-digit gains. I really do not know these funds and I do not know how they have managed to outperform the rest of the sector by so much. The strength of the dollar has hardly been helpful.
For the first time in 14 years, it looks like Legg Mason will fail to beat the S&P 500. However, I note that the group definitely on the up, M&G, has the fifth-best performing fund. American fund manager Aled Smith I think is one of the stars of the future.
Japan was particularly hard hit by the LiveDoor incident in the early part of this year. Small and medium-sized firms have been hit very hard with falls in the indices of up to 50 per cent. Legg Mason Japan props up the tables with a near 50 per cent loss but it has always been one of the most volatile funds. Usually the best time to buy is when it has been through an appalling period like this.
David Mitchinson at JPM has also had a hard time for similar reasons. I hope he will have a better year, particularly as I hold his fund.
Making predictions for the next year is perilous and normally completely daft. Generally, I feel more people are wary and bearish and this is a good sign. I will, however, look very carefully at the Daily Telegraph to see what other commentators have said. I am hoping most of them will be bearish, otherwise it could be a bad year.
Worries in 2007 will centre on the US housing market. Problems here could lead to a US recession. I believe we will probably muddle through but with a slowdown in the world economy. At some stage all the highly leveraged debt held by private equity, consumer debt and government overspending will bring its own problems but perhaps not just yet.
May I wish you all a prosperous New Year and of course your clients too.
Mark Dampier is head of research at Hargreaves Lansdown.