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New year rally sees all but one fund sector rise in January

01 February 2019

The opening month of 2019 has seen markets shake off the gloom that dominated the previous year, leading to significant returns from funds.

By Gary Jackson,

Editor, FE Trustnet

Investors have had a strong start to 2019 with some areas of the market rallying hard and all but one Investment Association sector posting positive returns.

The new year started with investors nursing losses from 2018, after a combination of the US-China trade spat, tighter monetary policy, slowing global growth and Brexit weighed heavily on sentiment.

While 2018 saw investors in most fund sectors lose money, January 2019 was quite the opposite picture as 36 of the 37 Investment Association peer groups ended the month in positive territory. IA Global Bonds was the only one down, where the average fund lost 0.15 per cent.

 

Source: FE Analytics

As the table below shows, the highest average return during January came from the IA North American Smaller Companies sector. Its average member made an 8.04 per cent total return during the month, which followed a 4.51 per cent loss in 2018.

Although investors in the US had to cope with the Federal Reserve hiking rates in 2018, they were expecting a pause this year. This was confirmed earlier this week, when the central bank maintained interest rates and hinted that it may slow the pace of its hiking programme.

Legg Mason Royce US Small Cap Opportunity was the best performing IA North American Smaller Companies fund in January with an 11.32 per cent gain, followed by Barclays GlobalAccess US Small & Mid Equity (11.19 per cent) and JPM US Small Cap Growth (9.53 per cent).

IA Property Other made the second-highest average return, with its top performers being HC Charteris Property (12.62 per cent), Aberdeen Property Share (10.80 per cent) and Premier Pan European Property Share (10.33 per cent).

The IA Technology & Telecommunications sector, which was at the epicentre of the sell-off in the second half of 2018, came in third place. January’s best funds from this peer group were T. Rowe Price Global Technology Equity (10.71 per cent), Fidelity Global Technology (9.17 per cent) and Pictet Digital (7.58 per cent).


Looking at individual funds, it is clear that the Brazilian equity market – which was one of the few strong performers in 2018 – has continued to top the tables at the start of the new year.

Indeed, 11 of the 30 highest returning Investment Association members – as shown below – focus on either Brazilian equities or the wider Latin American region.

The MSCI Brazil index posted a 16.27 per cent total return (in local currency terms) during 2018 compared with a 7.69 per cent fall in the MSCI AC World benchmark. Sentiment towards the country was bolstered by the election of far-right candidate Jair Bolsonaro as president; Bolsonaro has promised a number of pro-business reforms as well as plans to kickstart Brazil’s flagging economy.

 

Source: FE Analytics

The HSBC GIF Brazil Equity fund made the highest total return of the entire Investment Association universe in January 2019 after gaining 15.40 per cent.

In a recent update, managers Victor Benavides and Lee Ray said: “With elections behind us and a market-friendly cabinet in place, there is room to be optimistic about Brazilian equities for 2019, especially considering the macro backdrop with acceleration of the recovery, low and well-anchored inflation and abundant idle capacity.

“In the short term, markets may continue to experience volatility given global conditions (US dollar strengthening, commodity prices, US-Sino trade tensions, China growth concerns) and volatility related to reform agenda. As active managers, we see volatility as an opportunity to add certain names which we find appealing.”

BNY Mellon US Opportunities came in second place with a 12.97 per cent total return last month. The fund aims to be market cap- and investment style-neutral; it also brings together some of The Mellon Company’s key US large-cap growth and US mid/small-cap value strategies.

Funds investing in biotechnology had a strong start to 2019, with AXA Framlington Biotech and Pictet Biotech being among the 10 best performers in January.


When it comes to the domestic equity market, the highest ranked IA UK All Companies fund is Quilter Investors Equity 1 with its 10.98 per cent total return. This is managed by Richard Watts, who also runs Merian UK Mid Cap.

The FE Alpha Manager recently said he expects UK mid-caps to have a decent 2019 after the “difficult” conditions of 2018. “I enter this year feeling more optimistic,” Watts said. “There’s only so far our highly rated stocks can fall before their valuations look very compelling, particularly in comparison with slower growing, highly rated bond proxies.”

Franklin UK Mid Cap and Marlborough UK Multi-Cap Growth are the only other IA UK All Companies members to make it among January’s 30 best performing funds.

 

Source: FE Analytics

While Brazilian funds dominated in the list of the month’s best performers, it’s those with a focus on India that are clustered at the bottom of the performance table – 18 of the 30 funds with the biggest losses in January invest in Indian equities.

The Indian market was one of the best-performing in 2018 but missed the rally that kick-started this year. The country is due to hold a general election between April and May this year, while investors have been disturbed by the country’s weakening macroeconomic picture.

JPM India made the largest loss in January after falling 9.06 per cent, followed by JGF-Jupiter India Select and Neptune India. The only non-Indian equity fund among the 10 biggest fallers is City Financial Absolute Equity; it lost 8.10 per cent last month, following on from a 17.58 per cent slide in 2018.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.