What a shocking year it has been for investors. The global financial crisis has deepened, bringing with it fear and loathing. The easy annual double-digit gains of the preceding five years have been replaced by losses, some of them huge. No one is brave enough, or foolish enough, to predict where it will end. It is at times like this that fund managers are challenged to prove their worth.

The Australian sharemarket lost about 14 per cent during the year to August 31, while international shares lost almost 17 per cent in Australian dollar terms (these are total returns including dividends).

Australian listed property - a defensive sector no more - has lost 35 per cent during the past year.

Most "value" managers, who would normally be expected to hold up well because they invest conservatively, have been hit for six.

Yet a handful of managers have been able to limit the losses of their unit holders. During the final madness of the boom they were criticised for being cautious, for sitting on the sidelines and letting their cash build up while leaving easy gains on the table.

They were the managers who could not justify paying the high share prices that many companies reached in the latter stages of the boom last year. They considered the risk of a tumble in share prices was too high.

They watched as others piled into resources and topped the performance league tables six months ago. Those fund managers have now fallen back as commodity prices have weakened on fears of slower global economic growth.

Then there is the other darling of the Australian sharemarket - the banking sector. Despite being hugely profitable and paying growing dividends, the sector has been side-swiped by the turmoil on international markets and hit by the prospects of a slowing economy at home.

Ben Davis, the associate director of funds researcher Zenith Investment Partners, says government bonds and gold are about the only investments to do well over the past year.

The tables show funds ranked by their one-year return.

"There is not much green ink showing in the performance surveys, it is mostly red," he says.

The investors in share-based managed funds that have done the best are those whose losses have been minimised.

The better-performing share funds have tended to be those that picked the rise of the soft-commodities cycle and avoided the financial-services companies. Rising food prices are being driven by demand from emerging economies and the increasing use of farm products in bio-fuel production. Yet, arable land is diminishing and demand is growing for products that can increase crop yields.

Australian shares

Ben Davis points to Greencape Capital as one of the few fund managers that has been able to keep losses for its unit holders to less than 6 per cent for the year. Greencape's High Conviction Fund invests mostly in Australian shares but can invest up to 10 per cent in overseas-listed companies. Greencape was started in 2006 by Matthew Ryland and David Pace, who had worked for Merrill Lynch Investment Managers.

The fund has been underweight in resources and banks, which has helped its performance. But the fund's relatively good performance has come from more than just avoiding poorly performing sectors. It has made good money from fertiliser- and explosives-maker Incitec Pivot and another company at the forefront of crop protection, Nufarm. Other big contributors to the fund include Campbell Brothers, whose main business is analytical testing for the mining industry, environmental testing, equipment maintenance and chemicals.

Ryland says Campbell Brothers is a global player that is benefiting from the mining boom and has one of the most "effective management teams around, with a very good long-term track of delivery".

As for the market turmoil, Ryland says: "We are probably through the worst of it but it is going to be a long, slow grind back."

He is looking forward to when fundamentals start driving the market again. "Nothing is more frustrating than having share prices driven by short-term issues, although it does create plenty of opportunities and we are setting up our portfolio [to] take advantage of them."

For the managed funds that invest in the local stockmarket's minnow companies, the going has been particularly tough. The S&P Small Ordinaries Accumulation Index is down more than 19 per cent for the year.

Australian Ethical Investment is the deepest-green manager in Australia. Its Ethical Trust has restricted losses for the year to 3 per cent.

It is a fund that invests in smaller capitalised Australian companies and has about 25 per cent of its money invested in overseas-listed stocks. The manager will not invest in about 85 per cent of the Australian sharemarket on ethical grounds. Although it will not invest in the traditional resources sector, it has been investing in explorers, producers and retailers of coal-seam gas companies, such as Origin Energy, Arrow Energy and Pure Energy Resources. The manager has backed the three stocks because coal-seam gas emits 50 per cent less carbon dioxide than coal-fired power generation.

A long-term holding of the fund is natural-therapies maker Blackmores. The fund also has a big holding in eServGlobal, which is listed in London and Australia and makes billing software for mobile-phone companies.

Andy Gracey, the fund's portfolio manager, says eServGlobal is an Australian company that operates in 15 countries and has contracts with more than 80 mobile phone companies, most of which are in the developing world, where the "subscriber growth is going through the roof". Gracey says blood-products maker CSL and ear-implant manufacturer Cochlear have been good performers and their defensive characteristics are starting to show through in these tough times.

International shares

Global sharemarkets have been gripped by fear, with Japanese and European shares down about 20 per cent and shares in the US down about 16 per cent. The credit squeeze is tightening its grip, sucking liquidity out of the global economy.

China, the world's manufacturing powerhouse, has decreased production levels and commodity stocks have been sold off in recent months. Finance sector companies around the world have taken a beating, especially those carrying high levels of debt.

Against this background, international share funds that have done the best have tended to be those that have avoided the Western financial sector or have been very selective about which ones they hold.

The GVI Global Industrial Share Fund has been one of the better performers, and in this market that means restricting the losses to 7 per cent for the year. Global Value Investors is the international shares division of Anton Tagliaferro's Investors Mutual and Treasury Group.

The GVI team is led by head of investment Roy Chen. The fund has been underweight in US stocks and underweight in the financial sector since its inception in 2005.

Matthew Hegarty, GVI's senior equities analyst, says the fund does not hold any US financial stocks and the financial-sector stocks the fund owns have no direct exposure to the US sub-prime mortgage market.

"It has been an unbelievably tough market," Hegarty says.

"Confidence has really seeped out of the market and sentiment has been overwhelmingly negative."

Since the fund's inception it has been overweight in continental Europe. Telecommunications and healthcare companies are performing particularly well because of their strong balance sheets. German energy company E.ON and Dutch-based KPN International, which is "probably the best telco in Europe", Hegarty says, have done well for the fund. American consumer healthcare company Johnson & Johnson has also been a strong performer.

Little-known boutique manager Peters MacGregor Capital Management's Global Fund has been investing in companies that are relatively immune from the problems on global sharemarkets, losing slightly less than 7 per cent for the year.

The fund owns Michael Hill Jeweller, a New Zealand-based company that also does business in Australia and Canada. It owns the Toronto-listed insurer Fairfax Financial Holdings Limited and the New York-listed Iron Mountain, the largest document-storage company in the world. The fund's second-largest holding is Warren Buffett's Berkshire Hathaway investment company.

Peters MacGregor founder, Wayne Peters, invests on financial fundamentals. His fund, which underperformed in the boom, was cash-heavy because it refused to pay the high prices for shares as the boom gathered pace.

His conservative strategy is starting to pay off but "when everybody was flying it was a pretty hard story to tell", he says. Since the beginning of July the fund is up 8 per cent.

Peters says exchange rates are unpredictable and so the fund is fully hedged for currency.

That has added to the fund's returns during the past year because, until recently, the Australian dollar had increased in value, particularly against the US dollar.

Debt driven

Australian listed property is going through its toughest time since the property crash of the late 1980s and early 1990s, when investors couldn't get their money out of unlisted property trusts. The solution, it was agreed at the time, was to provide liquidity to investors in future by listing the trusts on the sharemarket.

But since those dark days, many listed trusts have ventured away from being passive owners of buildings and collectors of rents into riskier activities such as development and construction.

The ratio of debt to assets of Australian real estate investment trusts (A-REITs), as the sector is now known, has increased to more than 40 per cent from just 10 per cent in the mid-1990s.

Recently, listed property trust Centro announced a loss of almost $3 billion for the 2007-08 year, which was one of the biggest in Australian corporate history, and it continues to battle for survival.

The fundamentals of the Australian commercial property market remain sound. The main problem in the sector is with some of the trusts' balance sheets. They took on too much short-term debt to fund their expansion plans and in some cases, their distributions. They are having to reduce short-term debt through asset sales and lower their distributions to investors.

All the while the APN Property for Income Fund, which has been going for 10 years, kept investing the way it always has - with a focus on income rather than capital growth. A $100,000 investment in the fund at inception would now be worth more than $300,000, assuming distributions were reinvested.

Some managers have produced better returns over short periods, but few can match this fund over the long term. The fund has produced an annual average total return of 11.7 per cent since inception but, like the property sector in which it invests, the investors in the fund have taken a hit during the past year as the fund has fallen by about 26 per cent.

Howard Brenchley, the founder and chief investment officer of APN Funds Management, says it is income from rents rather than capital growth that drives the value of commercial property over the long term. "While capital values will fluctuate, no one can take away the distributions already received," Brenchley says. "The ability to manage risk and to find sustainable sources of income in property will only become more important as the market recovers."

Can't bank on it

The standout performer in Australian shares during the past year has been the SGH20 fund, run by SG Hiscock & Company, which achieved returns of more than 12 per cent while other Australian share fund managers were in the red.

The fund was founded by Stephen Hiscock in 2001. He is the big owner, with the remainder owned by staff.

Hiscock is media-shy and reluctant to give interviews. Although he is pleased with these returns, he knows performance can turn around quickly and is worried about the "tall-poppy syndrome".

Not all of Hiscock's funds are doing as well. The manager's small-companies fund is down more than 30 per cent for the year - well below the index return.

The SGH20 is managed by Robert Hook and Tim Wood. The fund holds a maximum of 20 stocks and has been underweight in the Australian financial sector, which has helped its performance relative to the index. Australian financial stocks have taken a hammering; NAB's total returns are down 33 per cent during the year to August 31.

Contributors to the performance of SGH20 include blood-products maker CSL, whose total return (share price plus dividends) has risen 26 per cent in the year to August 31, and Woodside Petroleum, whose total return increased 40 per cent. Crop-protection company Incitec Pivot has also performed well, as has construction and contracting companies Leighton Holdings and BHP.

TOP 25 GLOBAL SHARES RETURN                                                     
Fund name                                       1yr %   3yr %   5yr %                   
Zurich Investments Hedged Global Thematic Share         -3.34   ???     ???
Five Oceans World Fund (Professional)                   -5.7    ???     ???
Goldman Sachs JBWere Hedged International Wsale -5.92   7.13    ???
Five Oceans Wholesale World Fund                        -6.22   ???     ???
Peters MacGregor Global Fund                            -6.84   3.56    ???
BlackRock WS Hedged Global Titans                       -7.2    7.54    11.54
Global Value Investors Fund                             -7.34   6.78    7.51
GVI Global Industrial Share Fund                        -7.36   8.13    ???
Fidelity Hedged Global Equities Fund                    -7.42   ???     ???
K2 Select International Absolute Return                 -7.43   15.37   ???
Skandia GWS-Skandia GVI Global Industrial Share         -7.55   ???     ???
Sandhurst Professional GVI Global Industrial Fund               -7.61   ???     ???
BlackRock P Inv Hedged Global Titans                    -7.63   7.07    11.11
Global Equities Strategic Opportunities Alpha           -7.82   ???     ???
BlackRock Hedged Global Titans Fund                     -7.93   6.69    10.68
Skandia GIS-Skandia GVI Global Industrial Share         -7.95   ???     ???
MFS Fully Hedged Global Equity Trust                    -8.17   8.42    ???
Magellan Global Fund                            -8.25   ???     ???
Skandia GWS-Skandia MFS Hedged Global Equity            -8.39   7.89    ???
Skandia OIS-Skandia GVI Global Industrial Share         -8.5    ???     ???
Skandia GIS-Skandia MFS Hedged Global Equity            -9.35   7.29    ???
Skandia OIS-Skandia MFS Hedged Global Equity            -9.69   6.66    ???
Perpetual WFI Vanguard Int'l Shares Index (Hedged)      -9.79   5.59    ???
MLC Wholesale Hedged Global Share Fund Class B          -9.86   ???     ???
Walter Scott Global Equity Fund                 -10.06  3.21    ???
*CLOSED TO NEW INVESTMENT                                                       
SOURCE: MORNINGSTAR
TOP 25 AUSTRALIAN LISTED PROPERTY RETURN                                                        
Fund name                                       1yr %   3yr %   5yr %                   
Aust Unity Property Securities Income #                 -6.17   5.08    7.48
Experts' Choice Property Securities Fund                        -18.46  3.4     9.79
Perpetual's Wholesale Property Income Fund              -23.75  2.46    ???
Netwealth Property Share Fund                   -24.37  -1.06   6.12
Perpetual WFI - Perpetual's Property Income Fund                -25.17  0.47    ???
APN Property for Income Fund                            -26.52  3.45    9.76
Skandia GWS-Skandia APN Property for Income             -26.6   3.31    9.69
Skandia GIS-Skandia APN Property for Income             -26.88  2.86    9.14
Perpetual WFI APN Property for Income                   -27.02  2.51    ???
Norwich Union Invest Bond Listed Property Trust #       -27.14  -1.42   4.3
Skandia OIS-Skandia APN Property for Income             -27.24  2.34    8.65
Mercer Property Fund                            -28.93  0.16    ???
BT PPSI - MLC Wholesale Property Securities Fund                -31.08  -0.25   7.71
MLC Wholesale Property Securities Fund                  -31.08  -0.25   7.71
PIC Wholesale Property Securities Fund                  -31.09  ???     ???
BT Investment - APN Property For Income         -31.19  0.25    6.84
National Investment Trust - Property Fund #             -31.38  -0.92   7.06
BT Wholesale - Property Securities Fund                 -31.55  0.19    7.62
BT Wholesale - Property Investment Fund         -31.56  0.01    7.42
MLC MKey InvSer/UT Prop Securities Fund         -31.66  -1      6.92
CFS FC WS Inv - BT WS Property Investment               -31.73  -0.14   7.19
National Investment Trust - Property NEF #              -31.77  -1.52   6.44
CFS FC Inv - BT Property Investment                     -32.04  -0.71   6.56
Aviva Investors Prof Listed Property                    -32.15  0.59    8.52
The Property Income Plus Fund                   -32.2   -0.87   7.31
*CLOSED TO NEW INVESTMENT
SOURCE: MORNINGSTAR