Review of Last Year's Fund Award Winners
We take an early look at how our 2008 winners fared over the ensuing year.
It has been just over a year since we announced the winners of our Morningstar 2008 Fund Awards. The awards are based on an amalgam of 1-, 3-, and 5-year risk-adjusted performance, with the goal of highlighting strong performers in the last calendar year (the awards are annual, after all) that have also demonstrated an ability to deliver good long-term risk-adjusted performance. For the complete methodology, click here.
With that in mind, we though we'd take an early look at how our winners fared over the ensuing year. Before we do, keep in mind that one year of performance means next to nothing. That's the reason we put so much emphasis on risk and longer-term returns in our methodology and include qualitative input from our fund research team. That said, we can draw a few conclusions from subsequent performance:
| Fund Name | Annual Ret 2008 GBP | Annual Ret % Rank Cat 2008 | +/- Cat | Morningstar Category |
|---|---|---|---|---|
| IP High Income Inc | -19.09 | 6 | 9.18 | Europe OE UK Large-Cap Value Equity |
| M&G Recovery A Acc | -27.42 | 15 | 2.98 | Europe OE UK Large-Cap Blend Equity |
| IP UK Smaller Companies Eq Inc | -33.15 | 19 | 6.34 | Europe OE UK Small-Cap Equity |
| First State Asia Pacific A Acc | -18.68 | 4 | 14.84 | Europe OE Asia-Pacific ex-Japan Equity |
| Emerging World Fund Retail A Acc | -37.72 | 49 | -0.45 | Europe OE Emerging Markets Equity |
| Cazenove European A Acc | -11.84 | 6 | 11.66 | Europe OE Europe ex-UK Equity Large Cap |
| Franklin Mutual European A Acc € | -18.28 | 11 | 7.07 | Europe OE Europe Large-Cap Blend Equity |
| Aberdeen Glb World Equity A2 Acc | -15.65 | 29 | 5.22 | Europe OE Global Large-Cap Value Equity |
| Henderson Horizon American Eq A2 Acc | -21.53 | 60 | -0.90 | Europe OE U.S. Large-Cap Growth Equity |
| IP Corporate Bond Acc | -7.48 | 47 | 0.39 | Europe OE Sterling Corporate Bond |  |
(1) The risk adjustment and focus on long-term strength proved its worth in an extremely rough year: of the 10 funds to which we gave awards, 8 lost substantially less than their Morningstar category peers and relevant benchmarks. The average margin of victory over their peers was a staggering 5.63 percentage points. The two funds that lagged their category averages did so only by very small amounts.
(2) Our qualitative expectations were largely met: funds that we expected to show strength in down markets based on our knowledge of the mangers and their processes did exactly that. Take Angus Tulloch at First State Asia Pacific, to name just one: he has long focused on sustainable growth over near-term momentum and this can hold his fund back in the frothiest markets. In down markets, though, that focus lends the fund a sure-footedness that others lack. In 2008, the fund lost 19.4%--that may not sound very good, but it beat the average Morningstar Asia Pacific ex Japan fund by 14.8 percentage points and the MSCI AC Asia-Pacific ex Japan benchmark by a similar amount. Franklin Mutual European is another such offering--the managers from the legendary Mutual Series house (acquired by Franklin in 1996) focus relentlessly on value and their fundamental work held them in good stead in a rocky year--they beat their category and benchmark by more than 7 percentage points.
We can't say much more than we already have based on such a short time frame--but we want to note that these funds are sure to have their struggles from time to time. Indeed, most funds do; the key is to understand whether the underperformance is in line with your expectations for the fund's process or if it is indicative of something that merits more concern. In the case of Tulloch, for example, we expect the fund will look decidedly less impressive in markets led by momentum. We don't view that as a flaw, however--instead we see it as the necessary corollary to the fund's long-term strength and would be perfectly willing to endure multiple years of such underperformance with a view to longer-term success.
