The best and worst fund and investment trust sectors of 2021

The top-performing sectors for funds and trusts have returned 30% and 47%.

It was meant to be the year of the ‘Great Reopening’, when the global economy bounced back after a torrid 2020, but the pandemic has not gone away. However, investors have been rewarded for holding their nerve this year, even as markets proved tricky to navigate at times.

Here, we cast our eye over the best and worst-performing sectors across the fund and investment trust world this year.  

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Best fund sectors

Among the Investment Association’s (IA) open-ended fund sectors, the best performer in 2021 was India/Indian Subcontinent, returning just shy of 30% over the year to 9 December. The region benefited from a spillover effect as investors pulled money out of China and reinvested it in India, while its falling Covid rates since a big spike in the spring have been supportive of the market.

North America was the second strongest performer, with fund returns lifted by the growth stocks in the US equity markets, technology and healthcare powering higher in a continuation of the trend seen throughout 2020.

“The leadership has been concentrated into just a handful of stocks this year, so it’s actually been a really difficult year for active managers again in the US,” says Mark Preskett, senior portfolio manager at Morningstar.

If managers had not owned stocks such as Tesla (NASDAQ:TSLA), NVIDIA (NASDAQ:NVDA), Alphabet (NASDAQ:GOOGL), Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT), they would have struggled to outperform. Preskett points out as well as the lockdown theme, energy and financial stocks have done well in the US this year on shifting interest rate expectations and rising inflationary pressures.

Unsurprisingly, given the dramatic rises in fuel prices, the Commodity/Natural Resources sector was also on fire, up 25.4%. “The energy sector has gone from deeply under-owned and oversold, and impacted by the rebound in oil prices, and investors are now realising maybe it’s not as bad as it seems and the world still does need oil,” Preskett explains.

He adds: “Industrial metals have benefited from a rebound in activity post-Covid, and copper miners have been beneficiaries of the ESG movement as they are used in electric vehicles to make batteries, so it’s been a sharp rebound for that sector.”

Top 10 performing fund sectors of 2021*

*Data from 1 January 2021 to 9 December 2021. Source: FE Analytics. Investment Association sectors. 

Worst fund sectors

You might expect Latin America to do well during a commodities boom, but in fact it languishes at the bottom of the table in the open-ended fund space this year, down just over 10% on the year. Latin America has struggled with currency issues, inflation and high Covid infection rate. In addition, political uncertainty in Brazil has also not helped markets.

Emerging market debt has struggled for similar reasons: Global Emerging Market Bonds and EUR Mixed Bond complete the bottom three fund sectors, down about 6% each in 2021. Latin American and South African bonds are large parts of emerging market debt indices, Preskett says, and have faced a lot of headwinds this year.

Best investment trust sectors

In the closed-ended fund space, Association of Investment Companies (AIC) data shows that the best-performing sectors this year are dominated by alternative assets such as unquoted companies and property, as well as specialist equity.

Growth Capital is the top-performing sector year-to-date (as of 30 November), up 47%. This compares to a 13% weighted average return across all investment companies (excluding Venture Capital Trusts).

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A specialist property sector, Property - UK Logistics, was the second-best performer, up 43% as it benefited from the e-commerce boom, explains AIC communications director Annabel Brodie-Smith. “The best-performing sector, Growth Capital, is relatively new and invests in later stage venture capital. It has proved popular as higher growth companies stay private for longer, whereas the UK Logistics sector has benefited from the surge in online shopping and the need for more warehouse space.”

In third place was Country Specialist, up 31% as the strong performance of three Vietnam-focused investment trusts in the sector helped support returns.

Top 10 performing investment trust sectors of 2021*

* Share price total return data from 1 January 2021 to 30 November 2021. Source: AIC/Morningstar. AIC sector returns are weighted averages. 

Worst investment trust sectors

At the bottom of the pile this year were China/Greater China trusts, posting a 22% fall year-to-date as regulatory crackdowns in the country hit the education, gambling and technology sectors. “It’s been a really difficult year for Chinese equity holders,” notes Preskett. “But you have to be mindful that it has been one of the best-performing countries within the emerging markets for several years, so it is falling from a pretty high base.”

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Elsewhere in the AIC sectors, Property – Rest of the World (-20%) and Latin America (-19%) completed the bottom three laggards list.

“Investment managers have been rewarded for taking risk in more cyclical areas of the market, such as financials and commodities, this year,” Preskett says. “Despite Covid, inflation and geopolitical issues, it has definitely been a year for the equity investor.”