While sluggish, May markets turned out well for some fund investors. Technology and US equity funds enjoyed strong growth, with some even hitting double digits. At the other end of the table, China funds continue their slug from April as equity markets drop further.
Since the last time we round up the top and bottom performing funds, we’ve changed our methodology, adding a whole new batch of funds to our dataset.
On May 2, however, Morningstar also moved from our Morningstar Analyst Rating to the expanded Morningstar Medalist Rating. Subsequently, our list of rated funds available for purchase in the UK expanded from around 800 to over 3000.
Overall, May was ruled by the rising bond yields and the US government debt ceiling – but also by the apparent rush to invest in artificial intelligence and technology.
May's Fund Leaders
T. Rowe Price had the best performance in our dataset, taking up both the first and second spot with its UK and Luxemburg-based global tech funds. The two returned 17.07% and 16.89% - but have some catching up to do after losing over 50% of their value in 2022. So far this year though, both are up around 37%.
Overall, seven of the 10 are technology funds, and the other three, Nikko AM ARK Disruptive Innovation, Baillie Gifford American and MS INVF US Advantage, are all focused on US growth and carried by their tech holdings. Four of these funds have strong Morningstar Medalist Ratings: three gold (Polar Capital Global Tech, L&G Global Technology Index and Herald Worldwide Technology) and one silver (the aforementioned MS US Advantage).
Lewis Grant, senior portfolio manager for Global Equities at Federated Hermes notes these mega-cap tech names may fare better than the broader market, but that’s not necessarily because of a value rotation. He believes we still haven’t seen the end of the hiking cycle, and investors positioning for a growth rally will have to wait that little bit longer.
"It is their defensive characteristics that are in demand, rather than their position as growth leaders," he says.
"The one area of the market paying no heed to broader macro uncertainty is AI. […] AI has flown in the face of the sombre market outlook, leaving investors with two opportunities to face the challenging environment: high quality balance sheets and high paced innovation".
While tech and US equities did well, there are other categories that had strong performance too, and hovering between 30th and 50th place we find both Latin American and Brazilian equity funds, as well as Indian equity vehicles. Plus, with the Nikkei reaching 30-year highs, several Japan funds are found in the top 100, too.
May Fund Laggards
The hype surrounding the post-covid China reopening has well and truly died down, if we’re to believe the performance of the China funds in our dataset. The Morningstar China index is down 8% since the start of the year, but from the market peak in late January, the index is down more than 20%.
Ben Yearsley, director of Shore Financial Planning, comments: "in Asia, China’s manufacturing sector suffered a shock contraction in April followed by a further slip in May adding to weakness in equity markets, however China’s economy did grow faster than expected in the first three months of the year."
The worst performer overall was Bronze-rated Allspring Worldwide China Focus with a negative 11% return. This is however only marginally worse than the rest of the bottom 10 – even the best performer of these (Value Partners All China Equity) dropped 9%.
In this list we see six funds with podium ratings, including one of the two non-China funds on the list: Ninety One Global Gold. This is a switch-up from March, where gold became the top performer.
According to Yearsley, this is surprising: "I am slightly surprised at the poor performance of gold funds last month after the price of gold only slipped marginally. When markets get in a tizz gold normally does well, and with inflation cooling in many countries the rate hiking cycle must be nearing the end".
