The period has been disappointing for investors in UK equities with the FTSE All Share down 1.49 per cent and the average fund in the IMA UK All Companies sector losing 1.37 per cent.
Performance of index and sector in Q3 2014
Source: FE Analytics
By comparison the IMA China/Greater China and North America sectors have a seen an average return of 5.64 per cent and 5.53 per cent respectively, more than two percentage points higher than the best performing fund in the IMA UK All Companies and UK Smaller Companies sectors.
However, specialist India funds have mostly trounced the top performers in the IMA China/Greater sector.
The best performing fund over the last three months is the £250m First State Indian Subcontinent and £3m Matthews Asia India funds, which have returned a respective 17.16 and 15.47 per cent.
The Jupiter JGF India Select, BlackRock India, Jupiter India and Franklin India were also in the top 10 performers within the whole IMA universe.
Performance of funds, sector and benchmark over 3 months
Source: FE Analytics
The MSCI India continued an upward trend in Q3 thanks to a huge improvement in sentiment for Indian equities in 2014 following the election of Narendra Modi, who has promised sweeping economic reforms aimed at opening up the country’s financial markets as well as relaxing rules on foreign direct investment.
Julie Dickson, portfolio manager at Ashmore, is bullish for Indian equities in the long term but says risks abound following the huge gains made this year.
“We are cautiously optimistic on India. Earnings upgrades and a positive outlook for the economy have started to come through. Some manufacturers are already starting to see a pickup in activity resulting from government policy to kick start infrastructure investment, as well as continued positive consumer sentiment following Modi’s election,” she said.
“However, some risks remain that the market might overshoot, as the euphoria gives way to longer-term reforms dampening sentiment. We do remain bullish in the long term and see significant earnings upside over the next two to three years, but some valuations are starting to look stretched, particularly in mid-caps.”
“Companies in sectors such as financials and consumer goods are looking attractive with improving balance sheet quality and local retail demand. Earnings are coming in stronger than expected and valuations are looking attractive.”
The MSCI India gained less than half a percentage point more than the MSCI China over the period, and accordingly several funds in the IMA China/Greater China sector also performed highly, as did funds in the IMA Asia ex Japan sector that have high exposure to China and India.
The best performing China fund over this period is the New Capital China Equity fund, which has returned 16.4 per cent, followed by the NB China Equity fund which has returned 11.5 per cent.
The two funds are in the IMA China/Greater China sector, which also had the highest sector average return in Q3 at 5.64 per cent. The MSCI China was also one of the best performing indices over the same period.
Performance of fund, sector and benchmark over 3 months
Source: FE Analytics
The index had underperformed after selling off in May 2013 when the Fed began to hint that it would look to ‘taper’ its monthly stimulus programme.
Also, concerns about the health of the Chinese banking sector and a potential property bubble driven by a decade of high economic growth impacted sentiment.
However, with the index back at a new high, the period represents a return of positive sentiment to Chinese equities following the selloff.
Funds in the IMA Asia ex Japan sector also performed well compared to other sectors with an average return of 3.44 per cent.
Funds such as the £300m First State Asia Pacific Sustainability, managed by FE Alpha Manager David Gait, was the second best fund in the whole IMA universe thanks in part to its high exposure to Indian equities as well as China.
North American equities have also performed well over the past three months, despite warnings over the course of the year that valuations were starting to look stretched following a strong re-rating of equities over the past three years.
The IMA North America sector average for the period is 5.53 per cent while the top performing fund, the £375m F&C North American fund, has returned 8.69 per cent.
By comparison the S&P 500 has gained 6.12 per cent over this period.
Performance of fund, sector and benchmark over 3 months
Source: FE Analytics
Other top performing North American funds included Invesco Perpetual US Equity, Henderson US Growth and Cavendish North American, which all beat the index and sector average.
