October proved a challenging month for investors as markets sold off once again after investors reacted to the Federal Reserve rate-hiking regime by deserting equities.
While long sign-posted, the Fed’s ambition to move interest rates to a more neutral position has begun to affect investor sentiment.
With higher rates come higher US Treasury yields and as a result a rotation away from equities was seen before a late rally on the last day of the month.
The US blue-chip S&P 500 index, which led the decline but recovered towards the end of the month, lost 4.95 per cent in sterling terms over the course of the month.
The developed markets-focused MSCI World fell by 5.44 per cent, while the FTSE All Share index was down 5.19 per cent.
The sell-off was especially hard for the MSCI Emerging Markets index, which has been hit by negative sentiment amid an ongoing trade feud between the US and China and a strong US dollar, as it fell by 6.83 per cent.
Performance of indices in October
Source: FE Analytics
Bonds, conversely, performed better with the Bloomberg Barclays Global Aggregate index up by 0.92 per cent last month.
As such, the best-performing sector from the Investment Association universe in October was IA UK Index Linked Gilts, where the average fund delivered a 3.29 per cent gain.
Indeed, with just six sectors posting positive total returns in October – not including the two money market sectors – bond sectors dominated by taking five of the top positions, including the IA UK Gilts, IA Global Emerging Markets Bond, IA Sterling Corporate Bonds and IA Global Bonds peer groups.
The only non-bond sector making it into positive territory for average returns was IA UK Direct Property with a gain of 0.26 per cent.
All of the equity sectors were in negative territory along with more diversified equity-weighted strategies.
Given the poor performance of emerging markets during October, it was little surprise to discover that the worst-performing sector was the IA China/Greater China sector.
Making up the largest constituent of the MSCI Emerging Markets index and the target of US president Donald Trump’s ire over its existing trade deal, the average Chinese fund lost 11.37 per cent last month.
Other perceived riskier parts of the market were also at the foot of the performance tables during October as smaller companies-focused strategies across all regions fared poorly.
The worst losses were experienced by the IA UK Smaller Companies sector, which fell by 10.08 per cent.
Source: FE Analytics
On an individual fund basis, October’s best performer was the $61m BNY Mellon Brazil Equity fund, managed by Rogerio Poppe, which recorded an impressive 24.09 per cent gain.
Brazilian equity strategies took the top three places as markets reacted favourably to a victory for right-wing populist presidential candidate Jair Bolsonaro, with the MSCI Brazil index up by 20.25 per cent in October.
The election of Bolsonaro was greeted positively given his pro-market statements during the campaign – compared with his left-wing rival – and desire to reform the country’s problematic pension system.
Other top-performing Brazilian strategies included the $297.6m HSBC GIF Brazil Equity fund – managed by Victor Benavides and Lee Ray – and the $221m JPM Brazil Equity fund – overseen by Luis Carrillo and Sophie Bosch de Hood. They returned 20.23 per cent and 18.6 per cent respectively.
Latin American strategies with significant allocations to Brazilian equities were also among the top performers last month, albeit with single-digit gains, including: BlackRock GF Latin American, Barings Latin America, Schroder ISF Latin American, and Neptune Latin American.
City Financial Absolute Equity, managed by FE Alpha Manager David Crawford, was also in the top-10 with its 8.42 per cent gain.
Another top performer was the £206.6m Investec Global Gold fund – overseen by FE Alpha Manager George Cheveley and Hanre Rossouw – which was up by 6.66 per cent.
At the opposite end of the table, the worst performer was GAM Star China Equity. The $502.5m fund, managed by Michael Lai, recorded a 17.16 per cent loss
Indeed, as the worst performing sector there were several Chinese equity strategies at the bottom of the table.
Performance of index in October
Source: FE Analytics
Another poor performer from the sector was the €231.1m, four FE Crown-rated Comgest Growth China fund – overseen by David Raper, Baijing Yu and Jasmine Kang – which was down by 15.08 per cent.
Charlie Awdry’s Janus Henderson Horizon China and five FE Crown-rated Janus Henderson China Opportunities funds were down by 14.75 per cent and 14.29 per cent respectively, while the £87.8m five FE Crown-rated Quilter Investors China Equity – also managed by Janus Henderson – was down by 14.24 per cent.
The second-worst performing fund of the month was the £49.5m First State Japan Focus fund – managed by FE Alpha Manager Martin Lau and Sophia Li. The large-cap-focused fund recorded a 16 per cent loss.
Another Japanese fund among the 10 worst performers of October was the £818.3m four FE Crown-rated JPM Japan fund – managed by JP Morgan Asset Management's Nicholas Weindling, Shoichi Mizusawa and Miyako Urabe – posted a 14.43 per cent loss in October.
Given the sharp drop experienced by the S&P 500 during October, there were two US-focused strategies at the bottom of the table.
The recently-launched $45.1m New Capital US Future Leaders fund, managed by Mike Clulow, lost 15.88 per cent.
Joining it at the bottom was the £1.7bn four FE Crown-rated Baillie Gifford American fund – managed by Gary Robinson, Helen Xiong, Tom Slater and Kirsty Gibson – which fell by 14.69 per cent last month.
Rounding out the top-10 was £37m four FE Crown-rated Aubrey Global Conviction – a global equity fund overseen by Andrew Dalrymple – which was down by 14.95 per cent.