It will no doubt be clear to most investors that 2018 has so far been another year that is difficult to navigate, even though the past few weeks have seemed largely positive for markets. 
The year started with decent gains from many parts of the globe, before markets entered a rather sharp sell-off after strong economic numbers in the US made the prospect of interest rate hikes more likely.
This eventually turned into a gradual grind upwards for equities, however, with the FTSE 100 reaching new records highs last week and some commentators arguing that the blue-chip index will soon hit an unprecedented 8,000 points.
As investors enjoy the long Bank Holiday weekend, FE Trustnet thought it would be an opportune time to review how the various asset classes and fund sectors have held up in 2018 so far.
Performance of asset classes over 2018 to date
Source: FE Analytics
The above chart shows how most assets have had a challenging start to the year with global equities making a total return of just 2.41 per cent and government bonds rising 0.71 per cent; corporate bonds posted a loss.
A big mover has been volatility, evidenced by a near-to 15 per cent rise in the VIX index. From the VIX sitting at historic lows at the end of 2017, volatility spiked in early 2018 as investors grew nervous about the prospect of faster-than-expected interest rate rises; it has come down significantly from levels seen in February.
Despite equities enduring a tough time and volatility spiking, gold has only made marginal gains over the year-to-date with a 0.57 per cent rise. Investors have been cautious on the prospects of the yellow metal given the move towards tighter policy from the Federal Reserve, but did jump recently after US president Donald Trump cancelled a planned summit with North Korea.
Other global commodities have had a better time, however, as inflation continues to tick up in many parts of the globe, economic growth strengthens and trade tensions and economic sanctions restrict supply. Oil has gained 23.16 per cent in 2018 to date while agricultural commodities like cocoa, orange juice and wheat have risen by 20 per cent or more.
A look at the Investment Association fund sectors shows that some equity peer groups have managed to eke out decent gains in 2018, although none are in double-digit territory at a sector level.
The IA China/Greater China sector is in front with a 5.18 per cent average gain, despite concerns of a potential trade war with the US. This threat appears to have receded in recent days, while the addition of Chinese equities to the MSCI global indices in June has bolstered sentiment.
In terms of individual funds, Matthews Asia China Small Companies has been the best performing IA China/Greater China member over 2018 to date with a 12.71 per cent return, followed by First State All China (12.16 per cent) and Templeton China (10.38 per cent).
Performance of equity sectors over 2018 to date
Source: FE Analytics
IA UK Smaller Companies is in second place with an average return of 4.75 per cent. Jupiter UK Smaller Companies’ 10.96 per cent return makes it the best performer, with Marlborough Nano Cap Growth (up 10.49 per cent) and VT Teviot UK Smaller Companies (up 10.44 per cent) the only other funds sitting on double-digit gains.
At the bottom of the list, however, is the IA Global Emerging Markets sector with its 2.08 per cent loss. While China has a strong month, other major members of the asset class didn’t with the MSCI India index down 8.28 per cent and MSCI Brazil falling 2.94 per cent.
It was a very different picture to equities when it comes to the Investment Association’s fixed income sectors, as all seven are in negative territory for 2018 so far. During this period, the yield of US 10-year Treasuries reached the psychologically important 3 per cent level as the Federal Reserve continued to tighten its monetary policy.
Performance of bond sectors over 2018 to date
Source: FE Analytics
The best performer came from the IA Sterling High Yield sector, where the average is down just 0.62 per cent, reflected the concerns that investors have around interest-rate risk.
The two strongest performers in the sector led the pack by a clear margin with M&G Global Floating Rate High Yield up 0.94 per cent and Barings Global High Yield Bond rising 0.93 per cent. The next best performer is Royal London Short Duration Global High Yield Bond, which gained 0.36 per cent.
IA UK Gilts was the second strongest bond sector. Royal London Short Duration Gilts was the best performer after losing just 0.37 per cent, followed by Vanguard UK Government Bond Index (down 0.83 per cent) and Vanguard UK Long Duration Gilt Index (down 0.84 per cent).
An average loss of close to 4 per cent was seen in the IA UK Index Linked Gilts sector, however.
Within the multi-asset and more specialist peer groups, IA Technology & Telecommunications was the clear winner with its 8.63 per cent average return, even though data scandals have hung over the industry for much of the year.
GAM Star Technology has made the highest return on an individual fund level, thanks to a 19.01 per cent rise. Neptune Global Technology is up 16.71 per cent, Polar Capital Global Technology by 15.96 per cent and AXA Framlington Global Technology by 15.09 per cent.
Performance of multi-asset and specialist sectors over 2018 to date
Source: FE Analytics
The best performing multi-asset sector was IA Mixed Investment 40-85% Shares, which is in keeping with the fact that equities have had a stronger 2018 than bonds.
Two of the peer group have made more than 5 per cent – Baillie Gifford Managed and LF Odey Portfolio – while Neptune Balanced, Royal London Sustainable World Trust and Liontrust Sustainable Future Managed are up more than 4 per cent.
With bonds having a challenging time, IA Mixed Investment 0-35% Shares was the worst performer after seeing an average fall of 0.40 per cent. However, 17 of the sector’s members made positive returns; VT Tcam Income Portfolio leads after making 1.93 per cent.