Latin American equity funds have had an incredible comeback month, while vehicles with a China focus trail at the bottom of our fund performance list.
It’s a new month, and as usual, we're summing up the top and bottom funds in March and exploring the ruling trends that have driven the performance of UK-domiciled funds.
From the looks of it, markets are still keeping their cool in regard to the war in Ukraine. It is China funds that have struggled the most, accounting for most of the bottom 50 funds.
Last year, funds with a Latin American focus were struggling, but ever since December they have managed to provide strong growth and are currently thriving. Sector funds with a natural resource focus also did well in March, and just shy of the top 10 are several US large-cap funds that must be breathing a sigh of relief after taking a beating in Q1.
JPM Latin America Equity is the fund with the highest return this past month, growing 17.19%. It is one of four Latin American Equity vehicles that together top our monthly list, all with returns above 14%. In fact, this past quarter, they have all grown more than 25% too.
Ben Yearsley, director at Shore Financial Planning, says the returns were down to Brazil doing exceptionally well:
“The strong Real versus Sterling was a boon to UK investors and helped the Latin American sector to top the charts," he says. It gained 11.16% against the Pound in March.
Commodities and energy also continue to do well. JPM Natural Resources is up 13.49% but has outperformed the Latin American quartet over the past quarter, with returns of 28.57%. But, it is BlackRock's World Energy that has had the biggest quarterly growth among the top 10, with 34.63%
Moreover, global equities are rebounding from a disappointing start to 2022. While Baillie Gifford’s Positive Change and Worldwide Positive Change are still down about 10% this year, they have grown 11.44% and 10.07% in the past month respectively.
But, while equities have rebounded, the US market in particular has high exposure to growth sectors, which are exposed to rising borrowing costs. According to Jason Hollands, managing director at Bestinvest, rising interest rates and bond yields could have investors reassess the value of growth companies’ future earnings.
“This effect can be seen in the negative returns from the New York Stock Exchange’s FANG+ index of mega-cap growth stocks like Facebook, Apple, Amazon, Netflix, and Alphabet, as well as the growth stock-laden NASDAQ Composite index. These parts of the market have been trading on very expensive valuations for some time and the pain may not yet be over,” he says.
As mentioned, China funds had a particularly tough March. Every single fund in our bottom 10 has a China focus. Schroder’s ISF China saw the biggest losses, closely followed by Gold-rated FFSA China Growth – they lost 9.79% and 9.17% respectively. All of the funds in our list have had double-digit losses in the first quarter of the year.
Beyond China, the impacts of inflation and decisions of policy makers are currently holding markets in a chokehold. Fixed income, and particularly inflation-linked bonds, were not too far off of making it into the bottom performers.
Yearsley says:
“The Fed has hinted at rate rises every meeting from now on and even the ECB has talked up rate hikes. Bonds propping up the tables will be a common occurrence for the foreseeable future. It makes having a balanced and diversified portfolio challenging. Alternative sectors, such as infrastructure may well play their part as both a diversification tool and a hedge against inflation.”
