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Top performing funds of 2017

Anthony Fensom  |  02 Jan 2018Text size  Decrease  Increase  |  
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The past year has seen further growth in the exchange-traded product (ETP) sector, with the latest ASX data putting the sector’s total market capitalisation at more than $250 billion as of the end of November, including listed managed investments, mFunds and ETPs.

Among them, Australian real estate investment trusts (A-REITs) were the largest component, with 49 property funds capitalised at around $140 billion. This was followed by infrastructure funds ($69 billion), listed investment companies (LICs) and trusts ($38 billion), ETPs ($35 billion), with mFunds accounting for $503 million and single-asset ETPs $256 million.

By asset class, the largest proportion was invested in property, with more than $140 billion in Australian property and $886 million globally. Other big investments were fixed income (Australia) on $4.6 billion, followed by commodities ($879 million) and currencies ($573 million).

Notably, mFunds more than doubled in market capitalisation in the year to November, while ETPs enjoyed a 44 per cent gain, followed by listed investment companies (LICs) and listed investment trusts (LITs), up 25 per cent.

Among the top LICs for performance were Sandon Capital Investments (ASX:SNC), which posted a one-year return of 120 per cent, followed by Thorney Technologies (ASX:TEK), up 76 per cent.

Sandon describes itself as “an Australian-based activist investment firm” that seeks to unlock value in listed companies, securities and trusts, while Thorney is focused on technology-related investments.

A-REITs also enjoyed solid gains, led by Rural Funds Group (ASX:RFF) with a one-year return of 58 per cent. This was followed by PropertyLink Group (ASX:PLG), up 53 per cent, and Charter Hall Group (ASX:CHC), up nearly 48 per cent in the year to November.

Among the underlying investments held by infrastructure funds, Macquarie Atlas Roads (ASX:MQA) posted a one-year return of 36 per cent, followed by AusNet Services (ASX:AST) with 34 per cent.

ETPs also saw some high one-year returns, led by the UBS IQ MSCI Asia APEX 50 Ethical ETF (ASX:UBP), up 47 per cent, followed by the BetaShares Geared US Equity Fund Currency Hedged (ASX:GGUS), which rose by 45 per cent in the year to November.

Among the mFunds, the top performer in the year to November was the Schroder Asia Pacific Wholesale, up 42 per cent, followed by the JPMorgan Emerging Market Opportunities Fund, up 39 per cent.

Gold-rated funds

Morningstar has assigned a “gold rating” to funds including the iShares S&P 500 ETF (ASX:IVV), which is favoured due to its low annual fee and ability to track the benchmark US index, as well as the Vanguard US Total Market Shares Index ETF (ASX:VTS), described as “one of the cheapest ETFs in the world”.

Alex Prineas, Morningstar's associate director of passive strategies, highlights the structural factors behind the growth of ETFs, including their low cost, convenience and transparency. The local market has seen a growing range of ETPs, covering everything from bonds to currencies, international equities and “smart beta” strategies.

When picking the next winner, passive managers are generally favoured by Morningstar for US equities and ASX-listed property, while active managers are seen outperforming in small-cap ASX stocks.

This reflects the fact that the small-cap sector is generally less researched than the larger caps, giving managers the opportunity to outperform the benchmark, while it is harder to beat the well-tracked benchmark US indices.

“We know there are periods when active managers do well and when passive does better,” says Prineas, with index managers recently outperforming, largely due to the wave of cheap money flushing through global equity markets.

For Morningstar, the fund rating is a measure of a fund’s “risk-adjusted return relative to similar funds,” based on the “five Ps” of people, process, performance, parent and price.

Which funds will prove the winners in 2018? While past performance is no guarantee of future returns, choosing among Morningstar’s top-rated funds should give investors added comfort, along with selecting those funds that have performed over a long-term basis with a stable management team and proven investment strategy.

Although last year’s winner rarely repeats, the broad range of products now available provides plenty of choice to Australian investors in the Year of the Dog.

Anthony Fensom is a Morningstar contributor. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria. The author does not have an interest in the securities disclosed in this report.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.

is a Morningstar contributor.

© 2019 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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