As the world saw some markets and economies reopening for business with lockdown measures eased in May, FE fundinfo data shows that only one Investment Association sector posted losses over the month.
As the table below shows, it was the smaller companies sectors populating the top performing spots in May as risk appetite returned to markets when several countries stemmed the spread of coronavirus and started to ease their economies out of lockdown
Having been the worst performers during the initial coronavirus sell-off, smaller companies’ revived performance reflects the positive impact is being felt from the massive stimulus packages that have been launched around the globe.
Source: FE Analytics
May saw a strong performance from Japan with the IA Japanese Smaller Companies sector (up 12.10 per cent) topping the table and IA Japan (8.68 per cent) in third place. It’s worth noting that IA Japanese Smaller Companies sector is only made up of seven funds, so its average return can be boosted by having a few good performers.
Ben Yearsley, investment consultant at Fairview Investing, said: “A falling pound obviously helps returns, but maybe it’s a sign of both the cheapness of the Japanese market and resilient nature of their companies.”
Japan has unveiled just under ¥234trn (£1.76trn) – around 40 per cent of the country’s GDP – in stimulus packages. Japanese prime minister Shinzo Abe has hailed the ‘Japan model’ of dealing with coronavirus a huge success.
Japan took a more conservative approach to dealing with the outbreak, having limited testing and making social distancing voluntary. But it appears to have worked since Japan has had 16,581 cases of coronavirus with 830 deaths and, by avoiding the full-scale lockdowns seen in other parts of the world, it has done limited damage to the economy and businesses could keep moving at a reduced pace.
Other small companies’ sectors that performed well last month include IA European Smaller Companies (9.94 per cent) and last month’s best performer IA North America Smaller Companies (7.66 per cent).
Source: FE Analytics
Moving to the worst-performing sectors and there’s only one posting a loss last month: IA UK Direct Property, where the average fund was down 0.61 per cent. The sector has been hit by heavy outflows and several of its members have suspended trading because of liquidity concerns.
One sector that is worth highlighting is IA China/Greater China (0.97 per cent), which after starting out as one of the top performing sectors in the crisis has now moved to the bottom end as the full impact of the virus is being felt.
China’s economy shrank for the first time in a decade in May, contracting 6.8 per cent, a major factor in the outlook for the Asian markets this year, according to the International Monetary Fund (IMF).
Changyong Rhee, the director of the IMF’s Asia and Pacific department, said that IMF forecast that economies in Asia would see zero growth this year, for the first time in 60 years.
“This is worse than the growth rate during the global financial crisis and even during the Asian financial crisis,” Rhee said. “This time China may not be able to bail out Asia’s growth rate.”
Moving onto individual funds, this hit on the Asian markets is visible as Indian equity funds in particular were common at the bottom end of the table.
Source: FE Analytics
Alquity Indian Subcontinent, Pictet Indian Equities, Jupiter India and BlackRock GF India to name a few all made some of the Investment Association universe’s biggest losses in May.
This is despite Indian prime minister Narendra Modi announcing $265bn of stimulus – or 10 per cent of GDP – to help the economy. The country has undergone a huge lockdown to tackle coronavirus.
But the worst performing funds overall were two absolute return vehicles: the £4.8m The VT Oxeye Hedged Income Option, which lost 13.08 per cent, and the £4.9m BlackRock Emerging Markets Absolute Alpha fund, with a loss of 6.57 per cent.
Source: FE Analytics
At the top end of the table, the best performers generally reflected the fact that smaller companies had a strong month.
The £10.6m MFM Junior Gold fund tops the list with its 25.71 per cent total return. This is an early-stage mining equity strategy both gold and gold mining assets have seen a return of investors after they were sold off heavily back in March during the scramble for liquidity.
Merian Gold and Silver, LF Ruffer Gold and ES Gold and Precious Metals funds were other gold strategies that posted double-digit total returns last month.