Best performing funds of 2021

We are now just a couple of sleeps away from Christmas and the excitement in our household is building. And my children aren’t alone in wanting Santa Claus to arrive– investors are also keeping their fingers firmly crossed that he’ll make an appearance in the form of a Santa Rally during the last few trading days of the year.

What is a Santa Claus rally?

A Santa Claus rally describes a sustained increase in the stock market that occurs in the last week of December through the first two trading days in January.  There are a number of explanations for the causes of such a rally including tax considerations, a general feeling of optimism amongst investors, and the receiving of holiday bonuses.

Considering the sheer number of investment myths and legends that do the rounds, the most obvious question to ask is: Does the Santa Rally actually exist?

Well, the answer appears to be yes, according to an analysis by Schroders, which found US stocks have recorded a positive return in 77.9% of Decembers since 1926.

Tom Stevenson, investment director, personal investing, at Fidelity International, says that the run-up to Christmas is traditionally positive for UK markets too. “Shares have risen in 25 of the past 30 Decembers here in the UK,” he said. However, he quickly added a note of caution for those earmarking bumper returns. “It’s a brave call to bet on a 26th positive reading this time,” he said. “But who knows?”

Will it happen this year?

With so many potential problems and uncertainties still swirling around markets, a visit from Santa this year could be in doubt.

Top of his naughty list is clearly the Omicron variant of Covid-19, as its rapid spread around the world has already caused a tightening of restrictions.

But is a Santa Claus rally needed anyway? Global stock markets have actually performed pretty well in 2021, and it’s been a positive year for many investors. Out of the 57 sectors in the Investment Association universe, 41 have had positive returns and 17 are in the double digits*.

Best performing funds and sectors

The best performing sector has been IA India/Indian Subcontinent, where the average fund has returned a huge 26.7%*.

It’s followed by IA North America (25.1%*) and IA Commodity/Natural Resources (22%*), which benefited from rising gas and oil prices.

Indian equities started outperforming in the summer and have continued their steady gains, thanks to good growth, cheaper valuations and a gradual improvement in the Covid-19 situation.

The best performing Elite Rated fund in 2021 has been Goldman Sachs India Equity Portfolio, which has returned 34.8%*. It is followed closely by Stewart investors Indian Subcontinent Sustainability which returned 32.4%*.

Other funds on Santa’s nice list include Liontrust UK Micro Cap (30.8%*), IFSL Marlborough European Special Situations (28.7%*) and Brown Advisory US Flexible Equity (27.6%*), which make up the rest of the top five.

At the other end of the table, the IA Latin America sector was by far the worst performing, with average losses of 12.7%*. It was followed by IA China/Greater China (-7.8%*) and IA Global Emerging Market Bonds Local Currency (-6.9%*).

Top 20 performing Elite Rated funds in 2021*

*Source: FE fundinfo, total returns in sterling, 1 January 2021 to 16 December 2021