The controversial H2O Allegro fund was the top performing fund in July despite being downgraded by Morningstar analysts in June over liquidity concerns and its links to German entrepreneur Lars Windhorst.
The fund suffered millions of euros of outflows after Morningstar analyst Mara Dobrescu downgraded its rating from Bronze to Neutral. The fund, which invests in a diverse portfolio of bonds, sparked concerns because of its high exposure to illiquid bonds. Dobrescu said that while it had produced stellar annualised returns of 16.5% over the past eight years, this had come at “a higher risk than investors could have expected”. The fund then began selling off illiquid assets in a bid to address investor concerns. French owner Natixis also cut initial charges for H2O funds and priced them at a discount to encourage investors to return.
H2O posted a return of 14.8% in the month, making it the top performer among Morningstar rated funds in July. US-focused funds made up much of the rest of the top 10 after the S&P 500 stock market continued its strong run – the market only slid on the last day of the month after the Federal Reserve cut interest rates for the first time in over a decade.
Among the top performing funds were the Bronze-rated Schroder US Mid Cap and Gold-rated JPM US Equity Income, which returned 7.9% and 7.5% respectively.
Ben Yearsley, director of Shore Financial Planning, says it's not surprising that overseas investments have performed well: "UK fund sectors didn’t get a look in last month as sterling’s fall helped the overseas sectors hugely despite mixed markets. However the flip side of this good news is that if Boris achieves the impossible and actually sorts a Brexit deal then sterling should rise sharply pushing down the value of overseas investments."
The Bronze-rated Blackrock Gold and General fund took second spot, returning 12%. The fund invests in equities of companies that derive income from gold mining and commodities such as precious metals. It has a solid 47% weighting to Canada, approximately 19% to the Eurozone and 9.6% to Japan. Among its biggest holdings is First Solar (FSLR), an American manufacturing company, whose shares have soared 51% to $64.50 since the start of the year.
Sustainable fund RobecoSam Smart Energy also made a debut in the top performers, returning 8.3% in the month. The fund provides sustainable solutions to the growing need for clean energy supplies and is Bronze-rated by Morningstar analysts.
India and Equity Income Funds Struggle
At the bottom of the pile, the Bronze-rated JPMorgan India fund was down by 2.5% along with three other India-focused funds. The country enjoyed a strong rally earlier this year after Prime Minister Modi secured a second term in the general election, but the BSE Sensex stock market has since eased off, hurting funds investing in India’s stocks.
Equity income funds endured a difficult month, no doubt hurt by the negative sentiment towards the suspended Woodford Equity Income fund. Some investors have been shorting (betting against) stocks held in the fund, driving their share prices down, which is hurting other Equity Income funds with the same holdings. JOHCM UK Equity was down 1% in the month and Standard Life UK Equity Income 0.9%.
Absolute return funds have also struggled to make the grade. Jupiter Absolute Return, which was downgraded from Bronze to Neutral by Morningstar last month, was down 1.3% and BlackRock European Absolute Alpha was down 0.9%. The sector has struggled to live up to its name in recent months – number-crunching by AJ Bell has found a number of funds in the sector have not managed to meet their own performance targets.
