After spending months at the bottom of every performance table, China funds managed to flip the script and become the best performers in February. But gold and precious metals funds weighed down the table of the worst 10 performers as investors sought out equities amid record market highs in the US and Europe.
Of the roughly 3,200 Morningstar-rated funds available to UK investors only a quarter had a negative February – and of these, only one saw double-digit losses. Joining gold equity funds at the bottom were natural resources and European property.
China funds saw the biggest losses both in 2023 overall and in January this year, but the February gains have helped offset the poor start to the year. The government’s stimulus packages seem to have increased hope in a return to former greatness – but Chinese equities remain at a 20+ year low against broader equities, according to Fairview Investing.
Ben Yearsley, director at Fairview, comments: “It was an all-round fairly positive month. Many markets hit all-time highs, notably the Nikkei after 34 years, but also the S&P and Nasdaq again. With 14 all-time highs already for 2024, the S&P 500 is setting the early running driven by the Magnificent Seven. However, even China came to the party last month after more stimulus.”
Best Performing Funds in February
The best performing fund in February was Matthews China Small Companies, gaining 14% to partly offset the 12% January loss. On an annualised basis, the fund is still down 16% over the past three years, but over 10 years, the fund has gained an average of 8% yearly.
While all the funds in the list had double-digit growth in February, four of the eight China funds featured are still down on the year. Redwheel China Equity, which grew 13% in February, and Guinness China A Share, up 13% in February, are down 7% and 3%, respectively this year.
The list features two funds outside of the China equity category, too. The second-best performer in February was US large-cap fund GQG Partners US Equity – up 14% last month and 20% so far this year.
And yet again, we are talking about Nikko AM ARK Disruptive Innovation, the best performing fund of 2023, which fell to the bottom 10 in January. The fund is now back in the top 10 list after the Nasdaq highs.
Worst Performing Funds in February
The gold price has remained fairly steady at $2,052 an ounce at the end of the month compared to $2,057 in January. This did not help funds that hold gold stocks, though. As my colleague Fernando Luque wrote at the end of last year, precious metals mining are facing valuation challenges.
He writes: “The low return can be attributed to the capital-intensive nature of the mining industry, which is triggered by challenges in managing cost structures and exploration costs due to the scarce availability of these metals. In addition, risks of volatile commodity prices, geopolitical issues, and regulatory ecosystems further impact profit margins.”
The worst performer was ES Baker Steel Gold & Precious Metals, down 11%. The highest-rated fund among the bottom 10 was Gold-rated WS Ruffer Gold, which was down 7%.
Beyond the precious metals and natural resources categories, the worst performers also featured indirect property in Europe: Cohen & Steers European Real Estate and Premier Miton Pan European Property were down 7% and 6%, respectively.
Yearsley comments that the poor performance from property funds could be due to a change in outlook for interest rates, which may not fall as fast as the market was expecting. He adds: “The writing for physical property funds has been on the wall for many years and with the FCA too timid to make any kind of judgement on the sector it’s been left to fund managers to kill the sector.”
