At the start of 2017 some well-regarded investors were cautious on the outlook for equity markets, with question marks raised over whether the eight year long bull market would soon run out of steam.
One of those investors was Peter Spiller, manager of the Capital Gearing Trust, who warned investors should prepare for a bear market sell-off, and be ready to take advantage of it.
This, however, has so far failed to materialise and despite the various risks on the horizon, both developed and emerging market stock markets have continued to climb higher.
Below we round up the best and worst for the first half of the year.
THE FUND WINNERS
Global technology and emerging market funds dominate the top 10 performers, but a UK fund is sitting in first position - Old Mutual UK Smaller Companies Focus. The fund returned 32.2 per cent, which is more than double the IA UK Smaller Companies sector average of 14.6 per cent over the same time period.
Overall, the UK Smaller Companies sector returned 16.9 per cent in the first six months of this year, but it was not the best performing sector. Instead, that award went to European Smaller Companies, with the average fund returning 18.2 per cent.
European equities, particularly smaller companies which are more domestically focused, rallied as political risk on the continent subsided and economic data showed the European economy is improving.
While UK smaller companies have performed well too, Brian Dennehy, managing director of Fundexpert.co.uk, has some words of caution: ‘Continued uncertainty thanks to the failure of the Conservatives to get a parliamentary majority in the general election suggests we should keep a close eye on UK smaller companies – they can quickly move from heroes to villains.’
However, not all smaller company sectors continued to charge ahead in the first half of this year, as the US smaller companies sector, for instance, was the worst performing Investment Association overall, making a meagre 1.4 per cent.
While the election of Trump – who promised tax cuts and investment in infrastructure – was initially greeted with enthusiasm by investors, his words have not been followed actions thus far. This might explain why enthusiasm about US smaller companies has dampened.
EMERGING MARKET COMEBACK CONTINUES
Emerging markets and Asia are well represented regions among the top ten performing funds so far this year. The second-best performing fund overall was Baillie Gifford Greater China, returning 29.1 per cent, followed by NB China Equity with 28.6 per cent.
Emerging markets returned to form in 2016, spurred on by commodity prices recovering. Rather than rush to take profits various experts predicted at the start of the year the outlook remained positive, citing that valuations had not become overstretched.
‘Emerging markets, including China, have led the way as the recovery in the asset class which began in 2016 regained momentum in 2017,’ says Adrian Lowcock, investment director at Architas.
In addition to emerging markets, global technology funds dominate the list of best performing funds. T. Rowe Price Global Technology Equity took fifth spot and Polar Capital Global Technology came sixth with 27.9 per cent and 27.1 per cent respectively.
Lowcock says: ‘The technology sector continued to post good returns as investors have been focusing on the ability for tech companies to disrupt established market leaders and rapidly acquire large numbers of users and market share.’
But he adds that at some point investors will need to focus on the fundamentals of each business as not all technology companies offer the same risk and return.
BEST PERFORMING FUNDS
|Old Mutual UK Smaller Companies Focus ||32.2|
|Baillie Gifford Greater China||29.1|
|NB China Equity||28.6|
|Aubrey Global Conviction||28|
|T. Rowe Price Global Technology Equity||27.9|
|Polar Capital Global Technology||27.1|
|GS India Equity Portfolio||27.1|
|Morgan Stanley US Growth||27|
|Baillie Gifford Pacific||26.7|
Source: FE Trustnet and Architas, 31 December 2016 to 23 June 2017.
Subscribe to Money Observer Magazine
Be the first to receive expert investment news and analysis of shares, funds, regions and strategies we expect to deliver top returns, plus free access to the digital issues on your desktop or via the Money Observer App.Subscribe now