Funds that invest in Chinese equities and tech stocks have posted some of the strongest gains over the stock market rally of 2019’s opening three months, according to FE Analytics.
While investors had to contend with losses (or at best flat returns) from markets in 2018, factors such as the promise of an easier pace for monetary tightening and talks between the US and China over their trade tensions mean 2019 has gotten off to a strong start.
FE Analytics shows the MSCI World made an 8.80 per cent total return (in sterling terms) over the first three months of the new year while the MSCI Emerging Markets index was up 5.68 per cent.
There were some stronger numbers from individual markets, though, with the FTSE All Share rising 9.41 per cent, the S&P 500 making 10.91 per cent and the MSCI China index posting a total return of 12.68 per cent.
Source: FE Analytics
This translated into a robust quarter for the Investment Association sectors. Everyone one of the 37 peer groups made a positive return over the three months in question and, as can be seen from the above table, IA China/Greater China led the pack as its average member was up 14.66 per cent.
Chinese equities have just had their strongest quarter since 2014 with tailwinds such as MSCI’s move to accelerate the country’s A-shares in its Emerging Markets index, record inflows of foreign investment and strong buying by domestic retail investors being cited as reasons for the rally.
The IA Technology & Telecommunications sector had a strong quarter as well, after finding itself at the epicentre of the sell-offs in 2018’s last three months, while both of the North America sectors saw their average member achieve double-digit gains.
When we look at individual funds, China and technology strategies account for the many of the 30 best performers of the quarter but at the very top of the table is TM Cavendish AIM.
This £80.3m fund, which is headed up by FE Alpha Manager Paul Mumford and holds five FE Crowns, made a 21.45 per cent total return over the three months in question.
TM Cavendish AIM heavily invests in smaller companies but in his latest update, Mumford said he does not expect the UK’s exit from the EU to weigh too heavily on this part of the market.
Source: FE Analytics
“We feel well positioned moving forward and the majority of our companies do not seem too concerned about Brexit, he said. “We also think that our holdings offer attractive long-term potential despite any short-term uncertainties.”
In second place after making 20.61 per cent over the quarter is JPM US Small Cap Growth. This £212.6m fund is managed by Eytan Shapiro and Timothy Parton; it has a bias towards the growth style of investing and is the IA North American Smaller Companies sector’s best performer over three years after making 115.33 per cent.
Two other funds have made more than 20 per cent over three-month period: GAM Star China Equity and Matthews China. Furthermore, the presence of funds such as JPM Greater China, First State All China and NB China Equity at the top of the table reinforces how strong a quarter Chinese equities have just been through.
Tech funds are also well represented. Smith & Williamson Artificial Intelligence made the Investment Association’s sixth highest return in the first quarter, gaining 18.91 per cent.
This £154.4m fund resides in the IA Specialist sector rather than IA Technology & Telecommunications. However, it focuses on companies that are involved in the development and/or production of artificially intelligent systems or products.
T. Rowe Price Global Technology Equity, AXA Framlington Global Technology and L&G Global Technology Index Trust are among the other tech funds making more than 10 per cent in the first quarter.
Outside of China and tech, specialist strategies such as Pictet Global Environmental Opportunities, Standard Life Investments UK Equity Impact Employment Opportunities and Pictet Biotech made some of the Investment Association’s highest gains.
Source: FE Analytics
At the very bottom of the table is VT Garraway Absolute Equity, which was down 25.51 per cent over the quarter.
This fund, which was called City Financial Absolute Equity until City Financial Investment Company entered administration earlier this year and it changed hands, has endured a tough time in recent years. FE Analytics shows it is down around 40 per cent over one year and 35 per cent over three years.
The list of the quarter’s weakest performers includes a number of absolute return funds including BMO Global Equity Market Neutral V10, Thesis TM Sanditon European Select and Jupiter Absolute Return.