August’s top and bottom performing funds

A round up of the notable fund sector trends in August.

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  1. Rob Morgan

The trade spat between the US and China continued to overshadow global markets during August. Concerns grew that the longer the stand-off goes unresolved the greater the chance that the ten-year long economic expansion we have seen since the 2008-9 financial crisis will come to an end and, with it, the positive environment for equity markets. Charles Stanley’s Chief Investment Officer, Jon Cunliffe takes a closer look at recent volatility and provides our current forecast here.

Higher quality bonds performed well during the month as the demand for ‘safe haven’ assets rose and expectations of interest rate rises continued to subside. Earlier this year, the markets were expecting higher US interest rates, negative for bonds, but a complete change in tone from  the US central bank signalled rate hikes were off the table and it cut its key interest rate in July. Government bonds have rallied since and some of the best performing funds over the month were the gilt (UK government bond) specialists, which benefitted from the anticiapation of lower global interest rates.

Bond market moves also led to an “inversion” of the yield curve in US Treasuries. This is when the yield on government debt is lower for ten-year bonds than it is for two-year bonds. It is an unusual development as normally investors demand a higher yield for longer-dated debt, and it is often taken as a sign that a recession lies ahead.

With investor spooked and global equity markets under pressure, Asian and technology funds were notably weak. European fund also struggled as economic data continued to augur weakness. Germany is now expected to grow at just 0.5% this year, according to the latest economic forecasts by the European Commission, and the Bundesbank has admitted the economy may fall into a technical recession. Germany is particularly vulnerable as it is a major exporter to China, where economic growth has slowed to its lowest level in 27 years.

Donald Trump is keen to target car imports to the US in an attempt to boost manufacturing activity at home. The US president has suspended making a decision on a study into whether imported vehicles pose a “national-security risk” – a move that could lead to tariffs on vehicle imports, which would be a major negative for Germany and Japan. The trade war is hitting the global manufacturing sector too, which has seen a contraction. Emerging markets are also being hit by the dispute and the strong dollar. A trade war between Japan and South Korea has also escalated, causing further destabilisation in Asia.

In Latin America, there was considerable focus on Argentina, where Alberto Fernández, the opposition populist candidate won the primary election with a 47% share of the vote. If this voting pattern were to be repeated in October’s presidential election, President Macri would be defeated in the first round. It led to a vicious market reaction. The Argentinian peso depreciated by 33%, the Buenos Aires stock exchange lost around half its value and Argentinian bonds plunged. Templeton Global Total Return Bond was one fund among the bottom ten performers notably affected by the latter.

In the UK, the ‘no deal’ rhetoric ramped up to the detriment of the pound and many UK assets. The FTSE 100 hit a six-month low despite the slump in sterling; a weak pound usually bodes well for the FTSE, as many of its largest constituents derive the bulk of their earnings abroad. As the prospect of a no-deal Brexit draws closer, investors are focusing on what that might mean for the UK’s broader economic prospects, but the future shape of the nation’s relationship with the European Union still remains unclear.

Among the few equity funds that provided meaningfully strong returns were gold specialists as investors scrambled to make safe haven trades. Shares in gold mining companies tend to reflect, and often magnify, the price movements of the underlying metal it increases or decreases their profits.

Although investors should be aware past performance is not a reliable indicator of future results, here are the top and bottom ten Investment Association (IA) funds and sectors for August 2019 in full:

Top 10 funds:

Bottom 10 funds:

Top 10 sectors:

Bottom 10 sectors:

Past performance is not a reliable indicator of future returns. Figures are shown on a % total return basis, bid to bid price with net income reinvested; Source: FE Analytics, data for August 2019: 31/07/2019 to 31/08/2019. Onshore and retail open-ended funds only.

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