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The best and worst funds and investment trusts during January’s rally

01 February 2023

December’s Santa rally came late this year, with only three IA sectors down in the first month of the year.

By Tom Aylott,

Reporter, Trustnet

Markets entered 2023 with a bang as 94.6% of funds broke even or reported positive returns in the first month of the year, as some analysts suggested December’s Santa rally arrived behind schedule.

Indeed, the positive month follows a disappointing end to 2022, when only 12 of the Investment Association’s (IA) 57 sectors making a positive return in the last month of 2022.

In the first month of the new year 54 IA sectors were up as prospects of a shallow recession and near-peak interest rates boosted investor sentiment, according to Ben Yearsley, director of Shore Financial Planning.

However, rate announcements from the Federal Reserve and Bank of England over the next couple of days could test investor’s enthusiasm if hikes are steeper than anticipated.

Yearsley said: “This newfound confidence must be linked to growing expectations that central bankers are nearing the end of the rate rising cycle.

“How long will the risk on rally continue? Well, it could end today if the Fed springs a negative surprise.”

Funds within IA China/Greater China made the highest returns, bouncing 8.5% in January following a 16% drop in 2022.

Source: FE Analytics

Hints from the Chinese government that it will soon be lifting the zero-Covid restrictions that left the nation swinging in and out of lockdowns over the past few years have got markets excited about its potential reopening.

Within the sector, Templeton China and Fidelity China Innovation climbed the highest, up 12% and 11.5% respectively throughout January.

Indeed, Yearsley said that it was “definitely a risk-on month” for markets as the growth-heavy IA Technology and Technology Innovation sector came roaring back with an 8.3% return over January.

He added: “Sectors, regions and style get written off too quickly. China, bonds and tech are all recent examples where many investors decide they are uninvestable only to see strong rebounds shortly after – it still pays to have a diversified portfolio of different styles and asset classes.”

Even 2022’s worst performing sector, IA European Smaller Companies, made a positive return of 5.4% in January’s rally.

The high-risk appetite in January could also have led to the decline in the IA Healthcare sector in January, with returns down 1.6% throughout the month.

It was the second worst performing sector behind IA India/Indian Subcontinent, which dropped 3.4%. IA USD Government Bond was third and the only other sector to go down in January.

Turning to individual funds, the month was dominated by idiosyncratic passive strategies, with the likes of blockchain, clean energy and travel funds all making the top 10 for the year.

There was a clear trend for the rebound of last year’s losers, however, as evidenced by Nikko AM ARK Disruptive Innovation, which invests in the highest conviction ideas of Cathie Wood’s Ark Invest. The fund was up 19.6% on the month as technology and growth names recovered.

Source: FE Analytics

On the bottom of the pile was the Argonaut Absolute Return fund, which sunk 10.4% in January. Barry Norris’s £87.7m portfolio had a positive year in 2022, up 11.3% and climbing 10.9 percentage points ahead of its peers in the IA Target Absolute Return sector, but this was not the case last month.

The manager can go long and short positions, which helped in 2022 but can be a headwind when markets rally. Yearsley said that its fall in January was “not really a surprise when there is no high growth or emerging markets in sight”.

In the closed-ended world, trusts investing in China were also the best performers, with the IT China/Greater China sector up 15.4%.

Following 6.6 percentage points behind was the IT UK All Companies sector, which rose 8.8% in January after sinking 21.3% in 2022.

However, forecasts from the International Monetary Fund (IMF) yesterday could put a “dampener on the gloss” if investors are spooked by its negative estimates, according to Yearsley.

It predicted that the UK economy would contract 0.6% in 2023, making it the only major nation to shrink this year.

Yearsley advised investors not to take these pessimistic forecasts to heart, stating: “Gloomy forecasts from the IMF yesterday didn’t dent the mood, largely as they are normally wrong.”

In terms of individual portfolios, Warana Capital Alternative Liquidity and Blue Star Capital topped the investment trust universe in January, soaring 45% and 40.7% respectively.

Source: FE Analytics

However, the two worst performers of the month - New Zealand Exchange Barramundi and Electra Partners Unbound - dropped just as far, down 50.1% and 49.7% in January.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.