With global markets flicking the risk switch back on in July, our top and bottom funds list looks a little different from the previous month. Tech funds were back on top, but China funds dominated the laggards after an attempted recovery in June.
The best month for global equities since 2020 has been a strong example of a rising tide lifting all boats, with 662 out of 792 Morningstar-rated funds in positive territory in July, with 59 posting double-digit returns.
RobecoSAM Smart Energy was the best of the bunch, gaining 15.92% in July, with T. Rowe Price Global Technology in second place with a return of 14.81%. Silver-rated Morgan Stanley US Growth was in third place with a rise of 14.47%, while and stablemate Morgan Stanley US Advantage was in seventh place after rising 13.87%.
RobecoSAM Smart Energy is relatively new fund and has a Neutral Rating, with top holdings including US company ON Semiconductor (ON) and the UK’s SSE (SSE). Both stocks are rated a 3 stars by Morningstar analysts.
Tech funds have erased some but not all of the year-to-date losses because of a decent July. But the contrast between July and year-to-date gains in the top 10 list was stark.
Morgan Stanley US Growth was the worst performing in the period from January 1 to July 31 with a loss of 45.85% and US Advantage by 42.43%. Readers with longer memories will recall these two funds were among the very best performers in 2020, when a tech-fuelled boom drove the market recovery from the Covid crash: MS US Growth was the best performer that year with a gain of 110% and US Advantage rose 71.47%.
According to Morningstar Direct, technology makes up 57% of the US Growth portfolio, with a healthcare weighting of 20%. Data company Snowflake (SNOW), which has a 5-star rating from Morningstar analysts, is the US Growth fund’s biggest holding.
Of July’s biggest fallers, eight out of 10 of the worst performing funds were China-themed. We recently looked at China as part of our emerging markets special week and considered whether the country can start stimulating the economy just as the US is tightening. My Hong Kong colleague Kate Lin has also looked at the recovery in tech stocks there.
"China has taken a further hit, after a stellar few months, on the back of further Covid-19 outbreaks and lockdowns – the zero covid policy is hurting," says Shore Financial Planning director Ben Yearsley, noting the slowdown in economic growth in Q2.
"President Xi has a task on his hands with the next five year congress happening in late autumn. Can he afford no GDP growth?"
JPM China C, which has a Morningstar Analyst Rating of Silver, shed just over 10% on July, and was down 16% in 2022 for the first seven months of the year.
Two BlackRock gold funds made it into the bottom 10, including Bronze-rated BlackRock Gold and General and BGF World Gold, which were both down around 7% in July. The two funds are down 18% and 14% this year respectively as the price of gold has gone from over $2,000 per ounce to $1,700. The yellow metal has failed to match up to its inflation hedge promise, and the rising dollar has made precious metals less attractive to overseas buyers.
To flip the screen on its head, the best-performing funds so far this year include three natural resources funds: Neutral-rated BGF World Energy was up nearly 45% from January to the end of July, JP Morgan Global Natural Resources was 18.3% higher and JPM Natural Resources 17% above the level at the start of 2022.
BGF World Energy was a serious outlier in terms of YTD gains, so what’s in the portfolio? According to Morningstar data, Shell (SHEL) is the biggest holding in the fund with a near 10% weighting and Exxon Mobil (XOM) isn’t far behind. Both companies are riding the oil price boom, have reported record profits, and are promising generous buybacks and dividends for investors this year. Shell shares are up nearly 26% in the year to date and Exxon’s are nearly 50% higher.
Beyond natural resources, AQR Managed Futures, a systematic trend fund with a Neutral Rating, was in second position for 2022 so far with a gain of 23.59%, although it softened 3.36% in July.
