The recovery looks to be well and truly underway for some funds, with double-digit returns for our list of top performers in May.
The Neutral-Rated H2O Allegro fund is the surprise of the month. The fund was downgraded by Morningstar analysts a year ago after being put under review amid concerns about its exposure to illiquid, high-risk bonds linked to controversial German entrepreneur Lars Windhors. But the fund tops the leaderboard for May, up an incredible 23.1%. However, this wasn’t enough to reverse the heavy losses investors in the fund have endured in recent months and the fund is down 45.8% year to date.
Our monthly run down of top and bottom performers looks at funds rated by Morningstar analysts with returns in sterling. The top 10 table was a mixed bag in May. In second position is the Silver-Rated Morgan Stanley US Advantage, which is up 14.6%. The fund’s performance is also positive year to date – up 30.2% - despite the big stock market sell-off in March. The US stock market has proved remarkably resilient and was among the quickest to recover.
| Fund | Morningstar Analyst Rating | May Return (%) |
| H2O Allegro | Negative | 23.1 |
| MS INVF US Advantage | Silver | 14.6 |
| Nordea 1 - Nordic Equity Small Cos | Silver | 13.2 |
| Franklin Biotechnology Discovery | Neutral | 12.1 |
| Allianz Continental European | Bronze | 11.9 |
| Capital Group Japan Equity | Neutral | 11.9 |
| ASI Global Smaller Companies | Bronze | 11.6 |
| T. Rowe Price Jap Equity | Bronze | 11.6 |
| Montanaro European Smaller Cos | Bronze | 11.5 |
| Baillie Gifford Global Discovery | Bronze | 11.4 |
Ben Yearsley, director of Shore Financial Planning, says: “As before the crisis, the US and tech seem to be leading markets now. Many fund managers I speak to think this is unsurprising as the lockdowns and restrictions have forced more people online and has simply accelerated the digitalisation process that was already happening.”
With 67.3% of its assets in the US, the Bronze-Rated Baillie Gifford Global Discovery makes it to the best performers list this month, too. Among its top holdings is Teladoc, a virtual healthcare services whose shares have boomed under lockdown.
Two Japanese funds are also among the top performers; Neutral-Rated Capital Group Japan and Bronze-Rated T.Rowe Price Japan Equity were up 11.9% and 11.6% respectively. Yearsley says: ”A falling pound obviously helps returns, but maybe it’s a sign of both the cheapness of the Japanese market and resilient nature of its companies”. One particularly appealing feature of this market, he points out, is that there is no aggregate net debt in corporate Japan. Indeed, 56% of Topix-listed companies have net cash according to Man GLG – this compares to just 20% for FTSE listed companies and 15% for the S&P 500.
While many investors have sought safety in big blue-chips, three smaller companies focused funds are among our top performers for May: Silver-Rated Nordea 1 Nordic Equity Small Cap, Bronze-Rated ASI Global Smaller Companies, and Montanaro European Smaller Companies, which were up 13.22%, 11.6% and 11.5% respectively for the month. Smaller companies funds have generally lagged their largest counterparts year to date, with much ground still to make up. This trio have returned 0.04%, 4.29% and -3.15% from the beginning of the year.
Continued hopes for the discovery of a coronavirus vaccine have helped the prospects of many healthcare and biotech companies, so it's little surprise to see Neutral-Rated Franklin Biotech Discovery in the top performers, up more that 12% in May.
Worst Performing Funds in May
Bronze-Rated Fidelity China Focus was the worst performer of Morningstar analyst rated funds in May, down 3.5%. While there was no clear trend at the foot of the table either, there are two India funds in the list: Neutral-Rated Jupiter India and GS India Equity were down 3.15% and 1.6% respecitvely.
Yearsley says: “India was already starting to slow coming in to 2020 and is seen as susceptible to pandemics due to its healthcare system. However, one boost to the economy is the collapse in the oil price, which could even close the current account deficit this year and return it to surplus.”
| Fund | Morningstar Analyst Rating | May Return (%) |
| Fidelity China Focus | Bronze | -3.54 |
| Jupiter India | Neutral | -3.15 |
| Winton Diversified | Bronze | -2.82 |
| LF Equity Income | Negative | -2.05 |
| Fidelity Asia Pacific Opps | Bronze | -1.96 |
| Invesco UK Strategic | Neutral | -1.78 |
| AQR Managed Futures | Bronze | -1.63 |
| GS India Equity | Bronze | -1.59 |
| ASI UK Income Unconstrained | Bronze | -1.23 |
| Fidelity Asia | Bronze | -1.22 |
While China had a head-start on its recovery compared to many Western economies, two Asian funds also feature in the bottom performers list: Fidelity Asia Pacific Opportunities and Fidelity Asia, down 2% and 1.2% respectively.
Lastly, the Negative-Rated LF Equity Income fund - previously known as the Woodford Equity Income fund, which has closed - has lost 2% during the month. This week marks one year since the suspension of the fund and investors are still waiting to get their money back.
Ben Yearsley says: “Stock markets in May were calmer than April, although they obviously look to the future, are they now too optimistic about an economic recovery? The shape of the economic recovery appears less important now than the simple fact that lockdowns are slowly ending, and activity is picking up.”
