July’s top and bottom performing funds

A round up of the notable market and fund sector trends in July as the gold price soared to a new high.

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  1. Rob Morgan

Global share markets were mixed in July, but some areas built on a remarkable recovery since March lows. On the face of it, there is little to be positive about. Global public debt has reached its highest level in recorded history and estimates for company profits are sobering. For the Covid-19 affected second quarter, analysts pencilled in a decline of 50% in US corporate profits versus the same period in 2019 and a fall of 60% in Europe.

Investors have so far been happy to regard this period as an aberration and look to longer term trends. It is obvious global commerce slowed to a glacial pace from March to July. Rather than picking over whether companies did slightly better or slightly worse than anticipated during this time they are looking to next year, as well as assessing whether a business is ‘future proof’ in the coming decade or more.

Nonetheless, the past couple of weeks have delivered some hard figures on how public companies fared during the pandemic lockdown. Unsurprisingly, the profits of many retailers, restaurant chains, manufacturers and energy companies have nosedived, though many have still managed to beat low-ball market expectations. Elsewhere, though, the numbers from many technology companies and consumer brand conglomerates have pleasantly surprised as working and shopping habits have changed.

One legacy of the crisis that will be felt for many years is the swelling of bank balance sheets resulting from the spike in government spending to prop businesses and individuals while the worst of the pandemic passes. This ‘monetary loosening’ has given investors reason to distrust paper currencies more than usual and ignited interest in a timeless store of value: Gold. I recently summarised the confluence of factors contributing to the rising gold price here, and gold equities have, as they tend to, magnified the move in bullion with smaller and more highly geared companies leading the charge.

Besides the gold equity specialists, European shares responded positively to the EU’s move towards a bigger budget and shared financing and transfers from richer to poorer countries. The Euro 750bn package will be raised by the EU itself and represents a significant development in the evolution of the finances of the Union. The best performing non-gold fund was Baillie Gifford Positive Change, which continued to benefit from its higher risk concentrated portfolio oriented towards disruptive technology and transformational healthcare businesses. The fund, part of our Foundation Fundlist, also aims to contribute toward a more sustainable and inclusive world by investing in companies addressing critical challenges in areas such as social inclusion, education, quality of life and the environment.

In contrast, it was a more difficult month for many value and income orientated funds, as well as the Japanese sectors, where equities struggled owing to some dismal earnings releases from a host of major Japanese companies. Many UK funds also suffered from weakness among larger firms as the pound strengthened in currency markets, notably against the US dollar, which negatively impacts the earnings of businesses with mostly overseas earnings. Real estate investments were also a laggard as uncertainty continued over shorter-term rental income and longer-term prospects. However, as I noted in a recent article there is considerable divergence in how different markets are faring and a selective approach could be worth considering.

With many nations reassessing a laissez-faire stance on distancing measures and the need for lockdowns to combat Covid-19, as well as escalating tensions building between the West and China and what promises to be a bitterly contested US presidency later in the year, we suspect the remainder of 2020 could be a bumpy ride. Given the recent strong run-up in share prices, some near-term caution may be justified. However, ahead of the US presidential election in November, authorities there are doing everything they can to support equity-market valuations and the appetite for tight restrictions on people and economic activity remains low.

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 July 2020 in full:

Top 10 funds:

Bottom 10 funds:

Top 10 sector averages:

Bottom 10 sector average:

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 July 2020: 30/06/2019 to 31/07/2020. Onshore and retail open-ended funds only.

*There are around 3,000 funds on sale in the UK. The Investment Association divides these into nearly 40 ‘sectors’, broad groupings that help investors and advisers compare funds of similar types before looking in detail at individual funds.

Past performance is not a reliable guide to future returns. This website is not personal advice based on your circumstances. No news or research item is a personal recommendation to deal. Investment decisions in fund and other collective investments should only be made after reading the Key Investor Information Document or Key Information Document, Supplementary Information Document and Prospectus. If you are unsure of the suitability of your investment please seek professional advice.

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