Gilt strategies were the best performers in August as concerns over Brexit and the approaching deal deadline and increasingly belligerent US-China trade relations saw riskier equity strategies fell into loss-making territory, according to data from FE Analytics.
While traditionally one of the quietest months of the year, August saw several developments on a geopolitical level that spooked markets.
US president Donald Trump spooked markets with a tough stance towards China, ordering US companies not to source from the rival and announcing increased tariffs.
Elsewhere, UK prime minister Boris Johnson announced he would be proroguing parliament cutting the length of time for opponents to bring legislation to prevent a ‘no deal’ Brexit ahead of the 31 October deal deadline.
As such, the MSCI AC World index was down by 1.84 per cent, in sterling terms, while the FTSE All Share fell 3.57 per cent in August.
Against a backdrop of greater uncertainty, the best performing sectors were both focused on UK gilts. The IA UK Index Linked Gilts sector was up by 7.60 per cent, while the average IA UK Gilts fund rose by 4.89 per cent.
Source: FE Analytics
Ben Yearsley, director at Shore Financial Planning, said gilt strategies had surged as markets believed that rates had peaked and were more likely to be cut than raised.
Greater risk-off sentiment among investors also sent UK government bonds higher making it a “positive double-whammy” for gilt strategies, he said.
It wasn’t just gilt strategies that benefited, however, as other fixed income strategies and those with lower equity exposure fared better last month.
As can be seen at the opposite end of the table, higher risk equity strategies – particularly those exposed to the US-China trade war and UK equities – were among those that performed worst in August.
The IA Global Emerging Markets sector was the worst performer with the average fund down by 5.07 per cent, while the IA Asia Pacific Excluding Japan sector dropped by 3.94 per cent.
It was joined by a number of smaller companies sectors, including IA North American Smaller Companies (down 4.15 per cent) and the IA European Smaller Companies (losing 3.66 per cent).
All three main UK equity sectors were also found at the foot of the table, as Brexit uncertainty continued to take a toll.
The IA UK Equity Income sector was down by 3.46 per cent, while the larger IA UK All Companies fund lost 3.3 per cent and the IA UK Smaller Companies peer group fell 3.23 per cent.
On an individual fund basis, the list of best performers was overwhelmingly dominated by gilt funds, with the best performer Janus Henderson Index-Linked Bond.
The £213.9m, four FE Crown-rated fund is managed by Andrew Mulliner and Bethany Payne and made a total return of 9.40 per cent in August.
It was closely followed by the £104.5m ASI Sterling Inflation Linked Bond fund, which is located in the IA Unclassified sector and made a total return of 9.11 per cent last month.
Source: FE Analytics
Other than gilt strategies, there were two gold-focused funds featuring among the top-20 performers reflecting its ‘safe haven’ status: the MFM Junior Gold and Merian Gold and Silver.
The first, MFM Junior Gold, is managed by veteran investor Angelos Damaskos, and returned 8.81 per cent. The fund invests in early-stage small and mid-cap companies involved in identifying, developing and extracting the yellow metal.
The Merian Gold and Silver fund is a different type of gold strategy. Managed by Ned Neylor Layland, the $498.6m fund blends exposure to gold and silver mining stocks with the physical commodities. In August it made a total return of 7.7 per cent.
If the best performers were dominated by gilt strategies last month, it was clear that there was key theme among the worst-performing funds.
Indeed, while the US-China trade war might have dominated headlines last month, another area of emerging markets was overlooked: Latin America.
There were a number of Latin American equity strategies found at the bottom of the performance table last month following a shock election result in Argentina which sent the market plummeting, while Brazil also saw a big fall.
As such the worst performer was Brown Advisory Latin American, $377.3m fund overseen by Rupert Brandt and Peter Cawston, which was down by 13.89 per cent.
Source: FE Analytics
A number of Latin American equity strategies made double-digit losses, as the chart above shows. But there was a bit more variety to the bottom 20 than there was at the top.
The VT Garraway Absolute Equity – an absolute return, long-short equity strategy – overseen by David Crawford and Ade Roberts, was the second-worst performer of the month after making a loss of 12.92 per cent. It should be noted that the fund is currently suspended and due to be closed.
Meanwhile, Neil Woodford’s LF Woodford Equity Income was also found near the foot of the table having made a loss of 10.32 per cent in August. The fund remains closed to new redemptions and subscriptions and is likely to reopen towards the end of the year.
Another UK equity strategy also made double-digit loss last month, as the £15.8m Mirabaud UK Equity High Alpha fund – managed by Jeremy Hewlett – recorded a loss of 10.17 per cent.