After a difficult first quarter in which the FTSE All-Share index lost almost 7 per cent and the MSCI World more than 2 per cent, April has seen a return to better form. Most indices have seen gains over the month, with the UK indices leading the way: the FTSE All-Share is up 6.4 per cent and the FTSE 100 6.8 per cent.
That’s reflected in the leading fund sectors over April, with UK equity income and UK all companies both up 6.2 per cent at the top of the table. Carl Stick, manager of the Rathbone Income fund, points out that 2017 was a difficult time for the UK equity income sector as it proved difficult to keep pace with a momentum-driven market.
‘However, we wonder if investors are now beginning to dance to a different tune. Whether it be geopolitical issues, tariff tantrums or a shift in sentiment away from the technology behemoths, markets are becoming more volatile and the momentum trade is becoming less attractive,’ he comments.
‘Intriguingly, we find UK domestic names are increasingly attractive. It may be counterintuitive, but with so much bad news in the price, select UK names have a lot to offer the income sector.’
The two mainstream UK sectors are followed in the table by the North American sectors, technology, UK smaller companies, global and global equity income, all up more than 4 per cent.
Ben Yearsley, director of Shore Financial Planning, points to several factors driving the UK recovery, including the results season and a surge in M&A activity. ‘Is this the start of an M&A boom?’ he asks. ‘Interestingly sterling has staged somewhat of a recovery over the last six months post the Brexit referendum lows, but still looks cheap on a global basis.’
However, the individual funds at the top of the performance table were concentrated in the resources and energy sector. VT Cape Wrath Focus and Artemis Global Energy both rose an impressive 14 per cent, and eight of the top ten slots went to commodities-focused funds. All were up more than 9 per cent over the month.
‘Energy and natural resources had a cracking month, partly driven by an oil price surge, with Brent crude now hovering around $75. Artemis Global Energy, with a focus on smaller energy stocks, was the second best performer last month rising 13.92 per cent. Continuing tension with Russia and in the Middle East with renewed sanctions against Iran, as well as OPEC’s cutbacks, have all helped push oil higher,’ adds Yearsley.
At the bottom of the table there is more diversity, though index-linked bond funds are much in evidence on the back of US government bond rates continuing to inch upwards.
‘The US 10-year treasury flirted several times [in April] with the 3 per cent level. This level is seen as symbolic and it is only when the yield reaches 3.5 pe cent will commentators start to panic about the impact on US growth. However, in bond markets, the US leads and it is therefore unsurprising to see bond sectors at the foot of the fund sectors tables last month,’ explains Yearsley.
In addition, Russia and Eastern European funds continue to suffer after the bout of expulsions and threatened sanctions against Russia. ‘Russia remains one of the cheapest global markets, but has been especially volatile this year,’ Yearsley adds.
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