North American funds – particularly those investing at the lower end of the market capitalisation scale – were among February’s best performers although one UK fund manager had a particularly strong month, according to research by FE Trustnet.
Markets have enjoyed a strong start to the year, boosted by the Federal Reserve’s decision to pause its rate-hiking programme.
The FTSE All Share was up by 2.29 per cent in February, while the S&P 500 made a 2 per cent gain – in sterling terms – and the MSCI AC World index rose by 1.54 per cent.
As such, most sectors recorded a positive return in February with the IA North American Smaller Companies emerging as the best performer, after the average fund made a return of 4.97 per cent.
Other top performing peer groups included IA China/Greater China (3.44 per cent), IA Technology & Telecommunications (3.17 per cent), and IA North America (2.58 per cent).
Source: FE Analytics
Not all sectors were in positive territory last month, although the losses were small.
The sector with the worst performance was the IA Property Other, where the average fund lost 1.17 per cent loss.
It was joined at the bottom by the two UK gilt sectors, IA Global Emerging Markets Bond, IA Global Bonds, and both Japanese equity sectors.
With the opposition Labour Party now backing a second referendum and prime minister Theresa May open to considering an extension to the Article 50 process, the likelihood of a ‘no deal’ Brexit has reduced some of the appeal of safe haven gilts.
“As we head into March, Brexit will continue to dominate. With ‘no deal’ seemingly removed from the menu, and a deal more likely, even with a brief Article 50 extension, a relief rally may well occur both in the UK market and sterling,” said Ben Yearsley, director at Shore Financial Planning.
“UK equities remain among the cheapest internationally and the most under owned. With certainty, buyers could well return.”
On an individual fund basis there were a number of strong performers from across the IA universe, but one strategy sticks out for its double-digit returns.
The five FE Crown-rated TM Cavendish AIM fund made a total return of 12.34 per cent last month, compared with a loss of 1.02 per cent for the FTSE AIM All-Share index.
Overseen by FE Alpha Manager Paul Mumford, the £65.6m fund invests in a concentrated portfolio of high growth stocks listed on the junior market of the London Stock Exchange.
“The AIM market is at an attractive level and we feel positive on the outlook bearing in mind that there is likely to be volatility during Brexit,” noted veteran investor Mumford in his most recent fund fact sheet.
Source: FE Analytics
Its sister fund TM Cavendish Opportunities – also managed by Mumford but with greater freedom to invest outside of the AIM universe – was also among February’s top-10 funds, returning 7.14 per cent.
Last month’s second best-performing strategy was the £213.6m JPM US Small Cap Growth fund, managed by Eytan Shapiro and Timothy Parton. It was up by 9.03 per cent.
Another IA North American Smaller Companies strategy also at the top was the $335m, four FE Crown-rated Brown Advisory US Smaller Companies fund – managed by Christopher Berrier and George Sakellarias – which reported an 8.16 per cent gain.
Two funds from growth-focused asset manager Baillie Gifford also made the top five best performers, including the third best performer of February – the £716.1m Baillie Gifford Global Discovery fund, overseen by FE Alpha Manager Douglas Brodie (up by 8.42 per cent).
It was joined by the £2.1bn Baillie Gifford American fund – managed by Gary Robinson, Helen Xiong, Tom Slater and Kirsty Gibson – with its total return of 8.15 per cent.
The strong rally in at the start of the year also contributed to strong returns for Chinese equity strategie, led by JPM Greater China with a return of 6.85 per cent.
At the other end of the performance table, some of the worst performing funds were absolute return strategies.
February’s worst performance came from the £613.5m BMO Global Equity Market Neutral V10 fund, which made a loss of 10.12 per cent.
The fund, which is managed by Erik Rubingh and Chris Childs, targets 10 per cent annualised volatility over a three-year market cycle and a 7 per cent annual return over the risk-free rate.
Source: FE Analytics
Other loss-making absolute return funds include the £179.4m City Financial Absolute Equity fund – managed by David Crawford and Ade Roberts – which was down by 6.23 per cent and VT Oxeye Hedged Income Option, which lost 6.17 per cent.
There were a number of single country specialist strategies also found among the heaviest loss-makers last month, with Latin America a particular source of poorly performing funds.
The $305.5m, five FE Crown-rated HSBC GIF Brazil Equity fund, managed by Lee Ray and Victor Benavides, was the second-worst performer after losing 6.33 per cent compared with a fall of 5.75 per cent for the MSCI Brazil 10/40 index benchmark.
Weaker-than-expected economic growth of 0.1 per cent during the fourth quarter of 2018, suggested that it may take some time for the reforms of new president Jair Bolsonaro to filter through to the economy, despite an increase in business and consumer confidence.
“We still expect the economy to strengthen in the coming quarters,” said Capital Economics chief emerging markets economist William Jackson. “Financial conditions have loosened, the labour market has strengthened, and inflation has fallen. But these figures reinforce our view that growth will be softer than most expect.”
HSBC GIF Latin American Equity – a broader offering also managed by Ray and Benavides – followed closely behind it with a loss of 6.33 per cent. The fund has around two-thirds of its portfolio invested in Brazilian equities.