US equity and technology strategies were among the best performers in January, data from FE Analytics shows, as emerging markets – and Asia in particular – struggled in the wake of the coronavirus.
The infectiousness of the Wuhan coronavirus compared with previous flu outbreaks has been a great concern to Asian markets which sold off during January, with China and other Asian strategies struggling as a result.
Four of the sectors with the worst average returns in January were focused on China, Asia or emerging markets more broadly, with the IA China/Greater peer group China making a loss of 3.6 per cent.
However, the worst performing sector last month was IA Japanese Smaller Companies, with a loss of 4.12 per cent last month.
Worst performing sector in January 2020
Source: FE Analytics
Smaller companies – which are often more geared into the performance of the economy – struggled last month as the Bank of Japan decided to keep rates on hold despite a downturn since an increase in the consumption tax late last year.
The IA Japan sector also featured top-10 worst performing sectors with a loss of 2.19 per cent.
After the stellar gains for the UK domestic market in the wake of December’s decisive general election result and greater certainty on Brexit, UK equity sectors featured at the bottom of the table.
The IA UK Equity Income sector made a loss of 2.54 per cent, while the average IA UK All Companies peer was down by 2.34 per cent.
While there was bad news for UK equity investors, holders of gilts had reason to be a bit more relieved as both sectors featured among January’s best performers.
Sterling has continued to benefit from greater clarity over Brexit, while Mark Carney’s final decision as Bank of England governor to keep interest rates on hold provided some stability for sterling.
As such, sterling-denominated bonds – sovereign and otherwise – have performed well.
The IA UK Index Linked Gilts sector recorded the highest average return of all the peer groups, making a 5.23 per cent gain, and was joined by the IA UK Gilts (up 4.04 per cent), and IA Sterling Corporate Bond sector (up 2.36 per cent).
Best performing sector in January 2020
Source: FE Analytics
Ben Yearsley, co-founder of Fairview Investing, said: “The chance of a rate cut in the UK last week was supposedly more than 50 per cent due to weak data at the tail end of 2019.
“A cut always seemed slightly far-fetched to me though as the thumping Conservative election victory in December appears to have changed the tone in the UK economy and business community from outright pessimism to muted positivity.”
Another notable trend among the top performers last month was the outperformance of technology strategies and the technology-dominated US market.
The IA Technology & Telecommunications sector made a 4.72 per cent gain, while the IA North America peer group was up by 2.06 per cent.
The strong performance of technology was reflected among the best performing individual funds in January, with the best performer – the £2.8bn Baillie Gifford American fund – making a return of 10.32 per cent.
Managed by Gary Robinson, Helen Xiong, Tom Slater and Kirsty Gibson, the fund holds several major US technology stocks in its top-10, with Amazon as its biggest holding at 8.2 per cent.
Best performing funds in January 2020
Source: FE Analytics
Other top performers included the Liontrust Global Technology fund (up 8.91 per cent), Morgan Stanley US Growth (8.75 per cent), LF Miton US Smaller Companies (8.47 per cent), and Smith & Williamson Artificial Intelligence (7.8 per cent).
At the other end of the performance table, the worst performing fund was Schroder ISF Global Energy, which made a loss of 11.53 per cent in January.
Managed by Mark Lacey the $254.7m fund has its biggest holding in Schlumberger at 7.10 per cent, which is an international oilfield services company. The company’s share price had been consistently flatlining since November last year but took another downward turn at the end of January.
Worst performing funds in January 2020
Source: FE Analytics
Energy markets had a nervous start to the month as the US killing of a top Iranian general caused greater volatility and increased geopolitical stability, although the impact quickly filtered out of markets. Nevertheless, two other energy funds TB Guinness Global Energy and BlackRock GF World Energy were also among the bottom performers.
Other strategies lingering at the bottom included the value-orientated ASI UK Recovery Equity (down 9.11 per cent) and Chinese equity strategies Fidelity China Focus (down 9.05 per cent) and NB China Equity (down 8.42 per cent).