October's top and bottom performing funds

A round up of the notable market and fund sector trends in October as Covid ‘second waves’ and US election jitters unsettled markets.

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  1. Rob Morgan

A resurgence in Covid-19 infections in the US and Europe combined with worries over the outcome of the US presidential election to create a negative environment for markets in October.

Should Democrat Joe Biden win the White House this week, corporate and capital gains taxes are likely to rise. Adding to the uncertainty, incumbent Donald Trump has said he may formally challenge the election results if he loses. A glance at the polls thus far indicates that Biden looks to have cemented his convincing lead, but the race looks very tight upon examination of the crucial swing states.

Investors’ worst fears seem to be a close and contested outcome, which might jeopardise additional fiscal stimulus while things are sorted out. Others are concerned about a Biden ‘clean sweep’ – winning the White House and Democrats controlling both chambers in Congress – which would likely usher in a left leaning agenda and higher taxes.

The environment may be the biggest winner of the US presidential election, as the vote could flip US policy on its head if Mr Biden wins. Low-carbon energy – and investors in the technology that makes it possible – may be nearing their time in the sun. There’s more on the ‘green revolution’ here. Under Biden a more collaborative relationship is also anticipated with the United Nations, European Union and other bodies. There’s more on how a new orthodoxy may emerge here.

Adding to the negative tone, company results both sides of the Atlantic showed investors had got a little ahead of themselves. Apple shares fell after reported a 16% decline in iPhone sales – and failed to offer investors any guidance for the quarter ahead, though both Amazon and Google owner Alphabet beat expectations. Overall, ‘defensive’ and ‘growth’ businesses – those less reliant on improvements in the economy– performed better over the month, while cyclical or ‘value’ areas tied to economic health disappointed.

The ‘deadline’ for sealing a trade deal between the EU and UK came and went, and with little information emerging from behind the closed doors negotiation. Depending on what is agreed, the pound could continue to move around in currency markets, which will impact investments. UK funds generally performed poorly as the FTSE 100 limped to its worst month since March amid mounting coronavirus cases and tightening restrictions. Smaller companies provided a brighter spot and but funds investing for income, or in the index heavyweights, were generally poor. The FTSE 100 has been hit by the collapse in the crude oil price, as the UK’s blue-chip index has a high exposure to commodities, especially oil. There is also a heavy weighting in banks, which face lower interest rates for an even longer period, an environment that hits the profitability of lenders

European funds fared even worse on average as economic news from the continent took a worrying turn with more negative readings for consumer price inflation – every Central Bank’s nightmare. If price falls are sustained people tend to defer purchases, which lowers demand, production and employment and can result in a downward deflationary spiral. Surging coronavirus infections were partly responsible for Europe’s loss of momentum as France, Germany, Italy and Spain all introduced new shutdowns to halt a second Covid-19 wave, and, crucially, investors are currently largely in the dark as to the extent of monetary and fiscal stimulus that authorities might unveil.

More positively, Chinese equities performed strongly, which assisted the performance of Asian and Emerging Markets funds as well as the region-specific specialists. China will lead the world economic recovery this year with the latest third-quarter figures indicating modest overall growth for 2020 having apparently got to grips with the pandemic effectively. With international investors largely underexposed to China I take a look at the complexities and some investment options in the area here.

Gold equities fell as the bullion price drifted lower, somewhat counterintuitively given the market upheaval elsewhere, though it was impeded by strength in the US dollar resulting from the delay in agreement of a US fiscal stimulus package ahead of the presidential election. Crude oil, meanwhile, slid towards 5-month lows as ‘second wave’ concerns hit demand expectations and specialist energy funds were consequently weak performers.

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 October 2020 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 October 2020: 30/09/2020 to 31/10/2020. 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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