The collapse of Lehman Brothers on 15th September 2008 was a key milestone in the global financial crisis, teaching investors a painful lesson that nothing is too big to fail. It also provided opportunities; to buy stocks at the bottom and to benefit from what we now know to be the longest bull market run in history. So, which were the best performing sectors and funds in the decade since the collapse of Lehman Brothers, and why? Here, FE’s research manager, Charles Younes, takes a look at the FE data.
Smaller companies and technology sectors
Over the past decade, nine sectors achieved a first quartile performance ranking within the IA, four of which were smaller companies. IA Japanese Smaller Companies, IA North America Smaller Companies, IA UK Smaller Companies and IA European Smaller Companies were ranked second, third, fourth and sixth respectively.
Top performing sectors ranked in the top quartile of the IA over the last decade:
IA Technology and Telecommunications topped the sector list having achieved a top quartile ranking over the last 10 years and a total return of 348%. It is also the only sector in the IA universe to achieve either a first or second quartile ranking consistently (year on year) over the 10-year period.
Charles Younes commented: “In the last 10 years central banks have injected a significant amount of money into financial markets, creating a friendly market environment for investors with a high-risk appetite. So, it is not surprising to us that the riskiest assets have outperformed – in this case equities and smaller companies. This period has also seen the rise of technology-disrupting companies now known as FAANGS, which explains the consistent top performance of the technology sector.”
The importance of fund selection
Of the 23 smaller companies and IA Technology & Telecommunications funds to achieve a top quartile ranking over the last 10 years, nine have delivered an excess return of 175% or more above their sector average. Younes explains: “This shows that even in strong performing sectors, a skilled manager can add value by picking the right stocks.”
The nine funds (smaller companies sectors & IA Technology & Telecommunications) to outperform their sector by over 175% over the last 10 years.
The most consistent funds
Just 11 funds have achieved a first or second quartile ranking year on year over the last 10 years.
Younes explained: “It was not an easy ride from the lowest point in 2008, which explains why only a small number of funds have managed to outperform their sector peers every year for the last decade. The markets have been quite volatile and there have been significant market rotations around macro-economic events such as the European debt crisis, the Chinese slowdown and the Brexit referendum.”
The 11 funds to achieve a first or second quartile ranking year on year over the last decade.
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