The third quarter of 2024 has seen interest rate cuts in the UK, Europe and the US, a general election in the UK itself, and, at the very end of the quarter, a significant uptick in geopolitical tensions.
For the fund universe, however, the big story came last week from Chinese policymakers, who announced significant fiscal and monetary stimulus in the form of interest rate cuts and government support for the country's ailing property markets.
China equities are now dominating performance charts following the announcement of government stimulus packages. Stocks grew at a pace not seen since 2008 and funds invested in China soared by 30% in just a few days—enough to beat all other categories both for September and for the third quarter of 2024.
It Was 'Dangerous' to Write China Off All Along
Kristina Hooper, chief global market strategist at Invesco, comments: "while we don't have a lot of details about the fiscal stimulus, the size alone is encouraging. Last week’s China equity rally was powerful and suggests this is what investors have been hoping for.
"What's more, Chinese stocks are attractively valued, in my view, and I would not be surprised to see a continued positive impact as more details are released."
Another contributory factor was also the US Federal Reserve's 0.5% interest rate cut in September, according to Ben Yearsley, director at Fairview Investing. He argues the central bank pivot—the first in five years—was a catalyst for Beijing's multi-faceted approach.
"Having looked at markets for 25 years now I don't remember a month where one region or country so dominated," he says.
"The fascinating thing about China is that even a few short weeks ago many commentators were still writing it off as an investment opportunity. Interestingly one fund group, M&G, launched a new China fund only a few weeks ago. It's dangerous writing whole markets off."
Matthews China, the best performer in Q3, and Redwheel China, one of the worst performers in 2023 were the two funds that managed to breach through the 30% return mark for September and are now up by double digits for 2024 (25% and 15%, respectively). In contrast, these funds lost around 25% over the year 2023.
Precious Metal Equity Funds Shine
Only one other category managed to claim similar results in Q3, and that was precious metals equity funds with returns in the mid-teens. Gold tends to perform well during periods of geopolitical instability, but stabilising inflation across most major markets has also contributed.
It has been a decent three months for funds overall. Two thirds of the 3,163 funds in our dataset (Morningstar rated and available for sale in the UK) were up in quarter. The worst performer was down -11%, with only three funds in double digit loss territory. Meanwhile, 45 funds were up by over 10%.
The worst-performing funds for the month were a mix of thematic energy funds and thematic technology funds—and one Korean equity fund, too. Energy disinflation was one of the key drivers for a lower Eurozone inflation in September.
Russ Mould, investment director at AJ Bell, comments that oil price volatility has been fueled by fears that supplies could increase from the Middle East.
"There have been reports that Saudi Arabia and Libya could soon boost output, which has triggered a sell-off in the price of oil, dragging the Brent Crude price down to $71 per barrel in the early hours of this morning. In July, oil was trading at nearly $88 per barrel—meaning we’ve seen a 19% decline in the energy price in just two months."
China Rules in Q3
Matthews Asia Funds China
In the third quarter, the actively managed Matthews Asia Funds China rose 22.13%, while the average China equity fund gained 10.68%. The fund placed in the first percentile for performance and beat its benchmark, the MSCI China Index, by 5.75 percentage points. The £26.8 million fund has climbed 24.65% year to date, outperforming the average fund in its category, which rose 13.37%. Over the past three years, the Matthews Asia fund is down 8.61%, while the average fund in its category is down 9.96%.
GAM Multistock—China Evolution Equity
The £38.9 million GAM Multistock - China Evolution Equity rose 17.77% in the third quarter. The gain on the actively managed fund beat the average fund in the China equity category, leaving it in the seventh percentile for performance. The fund beat the benchmark, also the MSCI China Index, by 1.39 percentage points. Year to date, the GAM fund rose 20.66% but is down 5.96% annualized over three years.
FSSA All China Fund
The actively managed FSSA All China Fund gained 16.99% in the third quarter and placed in the 11th percentile for performance in the category, outperforming the average fund in the China equity category, which rose 10.68%. The fund placed in the 11th percentile for performance and beat its benchmark, the MSCI China All Shares Index, by 1.73%. The £61.7 million fund has gained 18.22% year to date and has a 3-year annualized return of negative 6.22%.
Energy and Technology Lag in Q3
Guinness Global Energy and WS Guinness Global Energy
The worst two funds in Q3 are two versions of the same fund: The £210.2 million Guinness Global Energy and the £54.7 million WS Guinness Global Energy, down 11.54% and 11.44% respectively. The funds were lagging in 2023 too, sitting in the 94th percentile in the equity energy category. Still, the funds are both up over 13% annualized over three years thanks to the strong performance of energy stocks in 2022.
BlackRock Global Funds—World Energy Fund
The £1.7 billion BlackRock World Energy, which also falls into the equity energy category, fell 10.14% in the third quarter. This fund, too, lagged its peers and performed in the 93rd percentile in 2023, but has a three-year annualized return of over 18%.
Liontrust Global Technology Fund
The £199.2 million Liontrust Global Technology, which falls into the equity technology category, fell 9.92% in the third quarter. The fund is up 12.65% so far this year but this comes off the back of a 58% return in 2023. Over the past three years, the fund has climbed 8.61% while the five-year average return is 16.96%.
This article was in part generated with the help of automation and reviewed by Morningstar editors.
