The funds riding the market recovery

Saltydog asks which funds are enjoying a revival in fortunes.

 

September got off to a poor start for investors. Renewed tensions in the Middle East pushed oil prices back above $100 a barrel, adding to concerns about inflation remaining higher for longer.

That, in turn, raised questions about the outlook for interest rates and economic growth.

The effect on funds was significant. During the week commencing 6 September, only two of the 35 Investment Association sectors that we regularly monitor made gains.

However, the picture changed considerably last week.

Although uncertainty in the Middle East remained, oil prices eased from their recent highs and most sectors rebounded.

This was despite the US Federal Reserve increasing interest rates by 0.25 percentage points.

The Bank of England took a different approach and left interest rates unchanged at 3.75%.

However, three of the nine members of its Monetary Policy Committee voted for an increase.

 

Recovered?

 

The broad recovery last week has certainly improved the picture for September, although it has not completely reversed the losses from earlier in the month.

As of 19 September, only 32% of the funds in our analysis were showing month-to-date gains.

 

Technology funds have been among the stronger performers.

 

At the top of the list is T. Rowe Price Global Tech Eq C Acc (BD446K0), up 4.4%. L&G Global Technology Index I Acc (B0CNH16), BGF World Technology D2 GBP (B8KMZ39) and Polar Capital Global Tech I Inc GBP (B42W4J8) have also been doing well.

 

This is quite a change from August, when gold funds dominated the top of our tables.

With the third quarter now drawing to a close, it also seems a good time to step back from the latest weekly movements and look at what has happened since the end of June.

It has been a fairly unsettled quarter.

July was difficult, August was much more positive, and September has been more varied.

Overall, progress has been fairly limited, with around half of the sectors that we regularly monitor still showing losses since the end of June.

However, when we look more closely at the figures, some interesting trends begin to emerge.

 

Shifting fortunes

 

UK Smaller Companies is currently the strongest of the sectors for which the Investment Association provides meaningful average performance figures.

It is up 4.9% since the end of June.

Financials and Financial Innovation is close behind with a gain of 4.8%.

The strength of the UK sectors is particularly noticeable. UK Equity Income is up 3.9%, while UK All Companies has gained 3.5%. That puts three UK sectors among the five strongest performers over the quarter so far.

However, some of that momentum has faded in September. UK Smaller Companies and UK All Companies are both down 1.6% so far this month, while UK Equity Income has fallen by 1.1%.

Healthcare and Biotechnology has also done well, gaining 3.7%, while Japan is up 3.3%.

The quarter-to-date figures do not necessarily show how performance has developed along the way. Some sectors started strongly and have since eased back, while others have gathered momentum as the quarter has progressed.

Japan is a good example. After a difficult July, it recovered strongly in August and has continued to make progress in September.

Looking at the sectors gives us a useful overview of the broader trends, but when we turn to individual funds the picture becomes much more interesting.

Overall, 55% of the funds in our analysis have made gains since the end of June.

 

Commodity complex

 

The strongest returns have come from gold, energy and natural resources funds.

Ninety One Global Gold I Acc £ (B1XFGM2) currently sits at the top of the table with a gain of 25.6%, narrowly ahead of BlackRock Gold and General A Acc (0585239) at 25.4%.

SVS Baker Steel Gold&Precious Mtls B Acc (BNGMZG1) is not far behind, up 24.2%, while WS Ruffer Gold C Acc (B8510Q9) has gained 19.7%.

The next group of funds is dominated by natural resources and traditional energy. JPM Natural Resources B Net Acc (B1YXDT1), WS Guinness Global Energy I Acc (B56FW07) and BGF World Energy D4 (B3Y9G49) have all gained around 17%.

WS Amati Strategic Metals B Acc (BMD8NV6) and BlackRock Natural Resources D Acc (B6865B7) have also posted strong double-digit returns.

The only fund in the top 10 that does not fit into one of these broad themes is Man Japan CoreAlpha Profl Acc C (B0119B5), which is up 14.6%.

At first sight, that might appear slightly at odds with the sector table, where UK Smaller Companies, Financials and Financial Innovation, and UK Equity Income are among the strongest performers.

However, there is a straightforward explanation.

The gold funds sit in the Investment Association’s Specialist sector, which contains a wide range of very different funds. An overall average for the sector would tell us very little about how gold funds themselves have performed.

A similar issue applies to Commodities and Natural Resources. The sector includes funds investing in areas such as energy, mining, agriculture, water and clean energy.

It also includes broader funds that can move between different themes. Because of this diversity, the Investment Association does not publish an average performance figure for the sector.

That means the exceptional returns from gold and natural resources funds are far more obvious when we look at the individual fund tables.

We explored this in more detail last week, when we looked at the very different strategies within Commodities and Natural Resources.

The third quarter has shown how quickly the picture can change.

July was difficult, August saw a broad recovery, and September initially appeared to be heading in the wrong direction. Last week’s rebound has improved the position again.

At Saltydog Investor, this is why we continue to look at performance over different periods rather than focusing too heavily on any single week or month.

 

 

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