Mark Dampier: Volatile market has fund managers flummoxed

I've spent 28 years in finance and I can't remember a period as volatile as the past four months. Daily stock market movements of between 1 per cent and 5 per cent have been common. The FTSE 100, including dividends, is flat for the year to date, but overall 2011 has not been kind to many active fund managers who have found themselves whipsawed by markets.

Encouragingly, Neil Woodford, manager of the Invesco Perpetual Income and High Income funds, is back at the top of the UK equity income sector. Many questioned his economic views, but his defensive portfolio has paid off recently. In the same sector Bill Mott has made a strong comeback with a similar stance.

Cyclically oriented funds, such as those of Standard Life, dominate the bottom of the UK Equity Income and UK All Companies performance tables. A resolution of the euro crisis could see the leader boards reversed though. Special mention goes to Anthony Cross and Julian Fosh, the much underrated managers of Liontrust Special Situations. They top the UK All Companies sector having made around 5 per cent this year. Finally, Trojan's focus on capital preservations has worked well across its fund range in 2011.

Absolute return funds have had a bad press. True, many have struggled, but some are realising their potential. Cazenove UK Absolute Target had gained 10 per cent this year, while Paul Marriage's Cazenove Absolute UK Dynamic is up more than 8 per cent. Melchior ST European Absolute Return has also protected investor's capital well.

But it hasn't been plain sailing for everyone. Phillip Gibbs' Jupiter Absolute Return has yet to find a firm footing, yet it has risen when markets have fallen sharply.

The strong performance of gilts has caught out many bond fund managers, with some shorting the market. This was incorrect and the best-performing funds have been gilts such as AXA Sterling Long Gilt, up around 23 per cent. To be fair, even Bill Gross, manager of one of the world's largest bond funds, got it wrong, but I remain disappointed with many strategic bond fund managers who have been too blinkered.

Rising inflation and interest rates have caused Asian and emerging market equities to pause for breath. I believe the long-term story is intact and I remain impressed with the consistency of Aberdeen and First State in this area. Legg Mason Japan Equity tends to be one of the best or worst-performing funds in the Japan sector. This year it has been the best. It wouldn't be my first choice, but personal favourites GLG Japan Core Alpha and Invesco Perpetual Japan are propping up the tables. I feel they will have a better 2012, but after too many false dawns I expect investors to remain nervous.

America and Europe have disappointed as the markets ignored company prospects and focused on economics and politics. I still struggle to find consistently good American fund managers available to retail investors, so perhaps an S&P 500 tracker is your best bet for this market.

As for Europe, any resolution of the crisis, be it a breakup or huge bout of QE, might send the market soaring. For what it's worth I believe the latter is more likely. Europe remains unloved and unfashionable – perfect for contrarian investors.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.h-l.co.uk/independent