March’s top and bottom performing funds

Rob Morgan rounds up the notable fund sector trends in March as share markets continued their generally strong start to the year.

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  1. Rob Morgan

The geopolitical outlook is volatile and economic data is becoming more mixed. No wonder some investors are getting nervous.  Now there is a worry sign from the bond market confirming this.

At the end of last week, the yield on the US 10-year Treasury (US government bond) yield fell below the yield on equivalent three-month bonds – the first time this has happened since mid-2007. The reverse is the norm, and the recent development is described by economists as an “inverted yield curve”, commonly viewed as a leading indicator of the end of the economic cycle. Typically, the lag between the inversion and recession is 15 to 18 months.

This doesn’t mean a recession is going to happen, though. There have been false signals in the past. It just shows investors have been buying longer-dated bonds, a sign that, in aggregate, market participants are getting nervous.  Concerns about Eurozone growth and the ongoing trade tussle between the US and China are key reasons. In addition, signs have been growing that the US Federal Reserve will push back interest rate increases until at least next year – making longer dated bonds look more attractive and suppressing yields. Some have even raised the possibility of an interest rate cut later this year.

Against this backdrop developed market government bonds were among the top performing assets for the month of March, and in respect to UK funds those specialising in UK gilts or index-linked gilts were strong performers.

Interestingly, share markets have appeared immune to bond market omens thus far. Most have quietly put together a strong run in 2019 with many US and China funds comfortably in double-digit percentage return territory in the year to date – albeit this represents a rebound from the very poor end to 2018.

Strength could also be justified on the basis that, despite tougher times ahead, Central Banks are seen as ready to cut interest rates and ease conditions for businesses, thus avoiding a dramatic slowdown. In any case, it is not uncommon that equities peak some months after a yield curve inversion and much closer to a recession actually occurring.

Even UK shares fared reasonably well despite confusing messages emanating from Westminster, albeit some more economically-sensitive areas were under pressure. Parliament continues to go round in circles searching for an agreement on Brexit, and it remains possible that the UK could leave the EU without a deal. Alternatively, there may be a long extension or even a general election. Once again weakness in the pound was the cue for the mainly overseas-earning constituents of the market to rally.

Among more specialist areas there was disparate performance within emerging markets. Latin American funds struggled and India specialists surged, in both instances a reversal of preceding trends. Asian equities were notably strong, helped by recent US dollar weakness, and positive sentiment continued to return the bellweather technology sector.

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 March 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 March 2019: 28/02/2019 to 31/03/2019. Onshore and retail open-ended funds only.

 

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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