It might be something of an understatement to say 2016 was a challenging one for investors to navigate.
The year started with a sell-off on the back of deflationary fears but indices then ground higher despite the UK’s vote to leave the EU and rallied hard after Donald Trump was elected US president, leaving stock markets around the world with new record highs.
These events took many fund managers by surprise, despite the industry’s mantra that either outcome from the EU referendum would have little impact on fund managers’ portfolios.
FE Analytics shows that the average fund in both the IA UK All Companies and IA UK Equity Income sectors failed to beat the FTSE All Share’s 16.8% total return in 2016.
Likewise, the average IA Global fund lagged behind the MSCI AC World index by more than five percentage points last year.
However, a closer look at the performance of individual funds shows there were some clear winners in 2016. These tend to be linked to one of the other big investment stories of last year: the outperformance of value investing over growth.
Put simply, growth outpaced value consistently between 2012 and the end of 2015 but this trend started to reverse halfway through last year. The MSCI UK Value index ended the year on a 26.4% return, compared with 9.2% for the MSCI UK Growth index.
There are many apparent reasons behind this trend, such as the valuation gap between expensive growth stocks and unloved value stocks becoming too large to ignore.
Others say investors have returned to value because their previous concerns about deflation have eased and many now expect the global economy to enter a reflationary period, benefiting more cyclically-geared stocks.
