May's top and bottom performing funds

A round up of the notable market and fund sector trends in May, a month of bearish news but mainly bullish markets.

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  1. Rob Morgan

Equity markets continued to move higher in May as hopes grew of a vigorous recovery from what is set to be one of the deepest global recessions in living memory. Overall, support for business from governments and injections of cash into economies from the world’s Central Banks were seen to offset the negative impact of measures to contain the spread of Covid-19.

In the UK, signs the country is beginning to emerge from the worst of the health crisis have encouraged the government to set out a path to loosening some lockdown restrictions. The economy will remain hampered for some time, but as various sectors begin to return to something approaching business-as-usual, the recent rally in shares has rotated to favour areas hard hit by recent events. This implies investors are sensing an easier and quicker recovery than before. Charles Stanley’s Investment Strategy Committee is somewhat more cautious on this prognosis and mindful of the great damage done to most economies of the world.

There was also further encouraging news from China where the economy looks to be well on its way to recovering from lockdown. Consumer spending, manufacturing and investment appear to be all bouncing back strongly. However, tensions between the US and China have the potential to escalate further, with Hong Kong at the centre of the latest row. The US is threatening Hong Kong’s preferential trading status and continuing to squeeze China out of 5G supply chains in the West. European equities fared relatively well following the announcement from the EU of a new €500bn fund of money to be spent on green policies and recovery from the pandemic. 

At a sector level, exposure to Consumer Staples, Healthcare and thematic Technology areas – which stand to benefit in the current environment – continued to assist returns. However, towards the end of the month there was a marked upturn in the more challenged areas including tourism, leisure, travel, hospitality and shop-based retail businesses. The vast majority of funds posted a positive return, although UK equity income funds lagged amid the uncertain outlook for dividends.

Gold enjoyed a further period of strength, buoyed by concerns that money printing on the part of the world’s central banks to help stave off economic crisis is debasing paper currencies and could ultimately fuel inflation. A further supportive factor is the ongoing geopolitical tension between the US and China. Yet equity markets had a real 'risk on' feel about them, which favoured funds in the Japanese and European Smaller Companies sectors as well as emerging market debt in fixed interest markets.

UK physical property was the weakest sector. During the Covid-19 lockdown, shoppers have increasingly moved to online retailers, accelerating the problems faced by many high-street chains which have higher fixed costs. There is considerable uncertainty surrounding rental income, a significant part of return, across a number of sectors, notably retail. Offices are also in the spotlight given the expectation that some companies might look to downsize offices following successful periods of imposed home working.

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 May 2020 in full:

Top 10 funds:

Bottom 10 funds:

Top 10 sector averages:

Bottom 10 sector averages:

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 May 2020: 30/04/2019 to 31/05/2020. 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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