Gold and precious metal funds dominate the list of best-performers in the six months since the MSCI World index bottomed out on 16 March in sterling terms, accounting for all of the top-seven positions in the IA universe over this time.
Top of the list is MFM Junior Gold, which made 179.45 per cent, with Merian Gold And Silver and ES Gold and Precious Metals in second and third place, up 138.17 per cent and 133.83 per cent, respectively.
Best-performing funds since 16/03/2020
Source: FE Analytics
Investors tend to flock to gold for its capital preservation properties during times of stress, which helps to explain why the price of the precious metal surged to an all-time high in August.
Yet, while the gold price saw a maximum gain of 33.54 per cent this year, the top-performing funds since the market bottomed out have been able to make many multiples of this figure as they focus on miners of the precious metal, which act as a geared play on its fortunes.
Gold miners had been out of favour since gold began to decline from its last peak in 2011. As a result, they traded at lowly valuations even as the price of the commodity began to creep up over the past few years. This year’s market crash and the rush to gold led to a sudden reappraisal of the sector.
However, it is worth noting that despite the spectacular gains made from the bottom of the market, MFM Junior Gold and ES Gold and Precious Metals are both down by more than 50 per cent over the past 10 years. Merian Gold And Silver was only launched in March 2016.
Performance of funds vs index over 10yrs
Source: FE Analytics
From a sector point of view, IA Technology & Telecommunications came out on top with gains of 50 per cent since the market bottomed out.
Even though the coronavirus and resulting economic lockdown caused the worst recession in history, the likes of the FAANGs – Facebook, Apple, Amazon, Netflix and Alphabet (Google) – were net beneficiaries of the pandemic as people stuck at home made greater use of modern technology.
Microsoft chief executive Satya Nadella summed it up by saying: “As Covid-19 impacts every aspect of our work and life, we have seen two years’ worth of digital transformation in two months.”
The best-performing fund in this sector since the market bottomed out is MFM Technology. Although its gains of 63.03 per cent mean it is “only” the 36th best-performing fund in the IA universe over this time, many of the best-performing US funds which are further up the list are those with a high weighting to the tech sector. These include Baillie Gifford American in eighth place, with gains of 103.47 per cent, and Morgan Stanley US Growth in 10th place, with gains of 100.17 per cent. It is worth noting that Baillie Gifford funds account for seven of the top-10 positions over this time, with the group’s pro-growth stance leading it to an overweight position in tech.
The second-best performing sector since the market bottomed out is IA European Smaller Companies.
Francesco Conte, manager of the JPMorgan European Smaller Companies Trust and JPM Europe Smaller Companies fund, said that while there is a belief that smaller companies tend to outperform when economies are accelerating and underperform when they are decelerating, history paints a different picture.
“Since 2000, smaller companies have only tended to underperform during times of severe stress,” he explained.
“But times of stress can often throw up buying opportunities for smaller companies.
“During times of stress, volatility tends to increase and central banks typically respond by injecting liquidity into the system. We’ve seen that play out again during this current pandemic, with central banks and governments deploying aggressive monetary and fiscal measures.
“As with previous crises, more liquidity in the system helps to reduce overall market volatility. And as risk appetite returns, demand for small caps increases, leading to outperformance of small caps.”
JPM Europe Smaller Companies tops this sector since March, up 68.01 per cent, followed by Janus Henderson European Smaller Companies and Jupiter European Smaller Companies, with gains of 64.79 and 63.83 per cent, respectively.
In third place is IA Japanese Smaller Companies. At the start of the crisis, Japan stood out as cheap compared with its long-term average on every major valuation metric and it has also benefited from a risk-averse culture that means many companies have large amounts of cash on their balance sheets. As at 3 April 2020, 55.8 per cent of non-financial Japanese companies were net cash compared with 22.8 per cent in the MSCI Europe index and 15.5 per cent in the S&P 500.
The best-performing fund in the sector over the period in question is Baillie Gifford Japanese Smaller Companies, with gains of 75.85 per cent, followed by Legg Mason IF Japan Equity (which is in the IA Japan sector, but is weighted to small- and mid-caps) with 69.47 per cent and Invesco Japanese Smaller Companies with gains of 55.6 per cent.
At the other end of the table, the only sector that is still in negative territory since the MSCI World index bottomed out is IA UK Direct Property, down 3.78 per cent. Many of the funds in this sector were forced to temporarily suspend trading after they struggled to meet redemptions when investors pulled their money out at the start of the market crash.
Best-performing sectors since 16/03/2020
Source: FE Analytics
Many of these property funds were forced to suspend trading last year in the run-up to the general election and in the aftermath of the vote to leave the EU in 2016.
The AIC has repeatedly likened open-ended funds that invest in illiquid assets such as physical property to “forcing a square peg in a round hole”.
Apart from property, the sectors that have rebounded the least are those that take on limited amounts of risk, such as those that focus on money markets, absolute return and fixed income. The pure equity sector that has rebounded the least is IA UK Equity Income, which has suffered from a high exposure to oil & gas, banks and other laggards. It has made just 21.03 per cent since 16 March.