India funds are back on top in August together with Japan funds, while China funds continue to lag along with natural resources and gold, according to Morningstar data.
Funds with an India focus have had a volatile year so far, jumping from the bottom of the table in April to the top in May due to a dramatic pick-up in Covid-19 cases and subsequent economic recovery. Meanwhile, European and UK smaller companies funds, which topped the table in July, continue to do well as they account for several top 50 funds.
Each month we look at the best and worst performing funds with a Morningstar Analyst Rating. Four of the top five this month are India equity funds, with returns hovering around the 10% mark and Morningstar Analyst Ratings ranging from Neutral and Silver. The top fund is Aberdeen Standard SICAV I Indian Equity, which was the only fund to deliver double-digit returns this month, up 10.64%. So far this year, the fund has returned 19.21% while its three peers on the top 10 have all seen growth above 20%.
Ben Yearsley, investment director at Shore Financial Planning, says there doesn’t seem to be any specific catalyst for India’s strength apart from a resilient economy in the face of the Delta Covid variant, which now seems to be easing. Inflation is under control in the country too and by most accounts the monsoon season has been good as well.
Japan funds also soared as Mr Market looks for political certainty ahead of a looming election, despite the current spread of Covid in the country – a welcome change for a region that has been struggling this year. FSSA Japan Equity had the strongest performance of the two Japan funds in the top 10, at 9.14%, and is modestly in the black year to date with a return of 2.81%. .
The wider Asia market has also done well, despite losses for China funds. FFSA Asian Growth returned 8.20% in August while Stewart Investors APAC Leaders Sustainability returned 8.02%. Meanwhile, the final three on the top 10 table are all funds with a sustainability focus.
Worst Performing Funds in August
China continues to struggle with the impact of regulatory changes. Funds with a Chinese focus accounted for almost all of the bottom 100 performers last month, but in August this is shared with natural resources, gold, and Latin American funds.
Gold prices pulled back in August but there was no single catalyst for the negativity. The US dollar strengthened slightly as markets outperformed, and a modest pick-up in bond yields may also have dented sentiment for the precious metal. Also impacting the price is the expectation that the US Federal Reserve will raise interest rates – or at least withdraw tapering – sooner than expected.
AJ Bell Investment Director Russ Mould explains: “In theory, rising interest rates would be bad for gold, as improved returns on cash and higher bond yields would increase the cost of owning the metal (owing to foregone interest or yield).”
Along with gold, broader natural resources funds also took a tumble. Oil prices were volatile partly because of hurricane Ida, which has hit southern states in the US.
BlackRock World Gold saw the biggest losses in August, down 5.46%, while BlackRock Gold and General follows close behind, down 4.85% - both hold a Morningstar Analyst Rating of Bronze. On the natural resources side, JPMorgan saw two of its funds land in the bottom 10, with losses of 3.87% and 2.89%. But, these funds are the only ones in the bottom 10 that have seen a positive year so far, both with double-digit returns.
Half the list still comprises of China funds, including Gold-rated UBS Investment China Opportunities. While several Latin American funds were close to making the bottom 10 list, only one did: Bronze-rated ASI Latin American Equity, which was down 4.17%. The Latam market is heavily reliant on basic materials such as commodities and natural resources, which explains why they are currently underperforming.
