Energy funds dominated the best performers of October, while an AI-inspired sell-off around the world had particularly adverse effects on Asian markets, data from FE Analytics shows.
Overall, however, the losses were greater than the gains. In particular, technology suffered last month, dragging several sectors down.
Among open-ended funds, IA Technology & Technology Innovation was down 7%, while on the trust side the IT Technology & Technology Innovation peer group lost 10.6%.
Fears of Fed rate rises (typically bad for growth stocks) and AI funding problems hit the sector hard, while progress on memory from Chinese competitors hit Korean heavyweights such as SK Hynix and Samsung Electronics as it sparked fresh concerns over these companies’ long-term pricing power.
Ben Yearsley, director at Fairview Investing, said: “Technology offers extraordinary opportunities, but investors still must contend with inflation, debt and higher interest rates. Governments can promise prosperity and tech executives can spend billions chasing AI. Somebody has to pay for it all. Increasingly, the bond market wants to know who.
“The AI boom isn’t necessarily over, but investors are rediscovering the difference between exciting technology and attractive investments. Building data centres is one thing. Earning a return on them is quite another.”
Source: FE Analytics
A big test will be the upcoming initial public offering (IPO) of Anthropic, the company behind Claude, which released its filing last month.
Even relatively robust results from tech giants Meta and Microsoft (Amazon and Alphabet were more mixed) could not stem the flow, with investors questioning the scale of AI spending and how quickly it might translate into profits, said Yearsley.
However, the biggest faller in the open-ended fund space was IA Latin America, down 10%. Brazil may have been a big factor in this, after its recent election.
President Luiz Inácio Lula da Silva secured a surprise fourth term, defeating Flávio Bolsonaro, son of the former president, in a run-off victory.
Yearsley said: “Markets had been betting on a Bolsonaro victory and tighter fiscal discipline. Instead, the Brazilian stock market promptly plunged almost 14% in a single day, triggering a temporary trading halt, while the real lost more than 8% against the dollar.
“By the end of the week, equities had fallen around 18%. Lula might have won the election, but the bond and equity markets clearly voted for the other chap.”
Source: FE Analytics
On the positive side, healthcare and infrastructure performed well across both universes, as did UK stocks, which held up well last month as markets approved of chancellor John Healey’s first Budget.
All these sectors can be described as defensive. Taking the UK, for example, the market is highly exposed to ‘old economy’ stocks such as oil and gas, mining and banks. The lack of technology was likely a benefit here, as was the exposure to oil.
Indeed, the list of top individual funds shows oil was largely the best place to invest last month. Ten of the top 20 funds were all dedicated energy specialists.
A barrel of Brent crude rose over the month from around $100 to $113, with Yearsley noting that “the Middle East conflict continues to cast a shadow over energy markets”. The iShares Oil & Gas Exploration & Production UCITS ETF was the top performer in October, up 15.5%.
Source: FE Analytics
Yearsley also highlighted the return to form of Nick Train. His WS Lindsell Train UK Equity made the top 20, up 10.8% last month, while his Finsbury Growth & Income trust can be found in the investment company table below.
“After years of watching his distinctive investment approach struggle, Train suddenly found himself back at the top of the charts. Reports of the death of his investment style may have been somewhat exaggerated,” Yearsley said.
Conversely, anything related to technology was hammered. Invesco ChiNext 50 UCITS ETF was the worst performer, down 22.5%, as China’s large-cap tech stocks dropped. Amundi Global Memory Chips was not far behind (-22.1%). Barings Korea Trust was the fourth-worst fund last month, down 20.3%.
There was also a sell-off in the cryptocurrency space, which had been under pressure from higher rates. Hackers stole $6.3bn from cryptocurrency exchange Binance in around 20 minutes, leaving some to worry about the safety of investing in the asset.
There were also losses for gold fans, with YFS Charteris Gold and Precious Metals among the 20 biggest losers in October, down 15.2%. Meanwhile, among trusts, Golden Prospect Precious Metals and Baker Steel Resources both made the table below.
Source: FE Analytics
“Gold bugs suffered another bruising month,” said Yearsley, with gold spot price ending October down around $300 at $3,898 per ounce.
“Perhaps the month’s biggest lesson was that market leadership can change remarkably quickly. Diversification rarely looks particularly exciting when one investment theme is dominating everything. Its attractions become more obvious when the music stops,” he concluded.