Most sectors were in the red in February as the Wuhan coronavirus began to show signs of turning from a local epidemic into a global pandemic, with markets across the world selling off.
Fears over the spread of the virus have hit investor sentiment and stoked concerns over a further slowdown for the global economy.
As such, the MSCI AC World – which represents 23 developed and 26 emerging markets – was down by 4.2 per cent during February, in sterling terms, according to data from FE Analytics.
From a fund sector perspective, more risk-off sectors were among the best performers last month, such as IA UK Index Linked Gilts and IA UK Gilts, which were up 3.05 per cent and 1.5 per cent respectively. The IA Global Bonds sector was also up by 1.5 per cent.
Performance of sectors in February 2020
Source: FE Analytics
Counterintuitively, one of the best performing sectors was China/Greater China, which was up by 2.84 per cent in February.
“China was the surprise performer last month, though for context it was one of the worst in January,” said Ben Yearsley, investment consultant at Fairview Investing. “The actions of the government appear to have slowed the spread of the virus and add in the announced stimulus measures and it’s no wonder investors are looking to the future already.”
Yearsley added: “It is quite likely that spooked developed markets will follow a similar pattern once the spread of the virus is under control – in other words a “V” shaped market fall and bounce is quite likely.”
More sectors were down than were up last month and those strategies at the riskier end of the spectrum were among the worst performers.
The biggest fall was in the IA Japanese Smaller Companies sector, which was down 12 per cent, where the impact of the virus has taken a heavy toll.
According to consultancy Capital Economics, the coronavirus will probably result in a contraction in economies accounting for 40 per cent of Japan’s exports during the first quarter, impacting more domestic-focused smaller companies.
UK equity strategies were also down considerably last month as guidelines for the forthcoming trade negotiations with the EU suggested the government was prepared to take a harder line and renewed the possibility of a hard Brexit.
This marks a turnaround from the optimism in UK markets that erupted following the decisive general election victory in December. At the time it was thought this had removed much of the uncertainty surrounding Brexit.
As such, the average IA UK Smaller Companies fund – perceived to have the highest exposure to the domestic economy – was down by 9.96 per cent. Among the worst small-cap funds were TM Cavendish AIM, Liontrust UK Mid Cap and Unicorn UK Smaller Companies.
The IA UK All Companies and IA UK Equity Income sectors were down by 9.55 per cent and 9.33 per cent, respectively.
On an individual fund level, the best performer was Matthews China Small Companies, which was up by 12.61 per cent in February.
The $73m, five FE fundinfo Crown-rated fund is overseen by Tiffany Hsiao and Lydia So. It only invests in companies with a market cap of less than $10bn.
Yearsley said a recent update from the manager had suggested that 35 per cent of the portfolio benefited from the virus as it has invested in areas such as medical-waste recycling and medical diagnostics companies.
In addition, measures to shore up the economy would have benefited more domestically focused smaller companies.
Source: FE Analytics
China funds in general were among the best-performing strategies, with other top-performing funds including Barings China Select, GAM Multistock China Evolution Equity, GAM Star China Equity, Templeton China and Invesco PRC Equity.
Elsewhere, a number of bond funds focusing on a range of different areas were among the top performers.
At the other end of the table, energy strategies did the worst – Schroder ISF Global Energy propped up the pile with losses of 20.02 per cent last month.
The $218.1m fund, managed by Mark Lacey, recently topped Chelsea Financial Services’ RedZone, a list of worst performers over the past three calendar years.
It was among a number of energy strategies that suffered on the slump in oil markets following concerns about the coronavirus’s impact on global growth.
Other strategies in the red included MFM Junior Oils Trust (down 19.34 per cent), TB Guinness Global Energy (-15.46 percent) and BlackRock GF World Energy (-13.90 per cent).
Source: FE Analytics
UK value strategies also suffered, such as SVM UK Opportunities and ASI UK Recovery Equity, which were down by 15.51 per cent and 14.16 per cent, respectively.
Other underperforming strategies included Brazilian/Latin American equities and eastern European equities.