2017: Sector winners and losers (year to date)

At the end of the first quarter we take a look at the sectors that have performed well over Q1, as well as those that have lagged.

(click here for our look at top & bottom funds)

Asian and Emerging sectors make up the majority of the top performers while “lower risk” sectors dominate the bottom table.

How we got here

• The year so far has largely been a US-led story.  The Trump trade was in rude health up until the vote on the American Healthcare Act, Trump’s answer to “Obamacare”.  His failure to get a plan approved has shaken investors’ faith in the President’s ability to get his other campaign promises through.  
• Asia has been reasonably quiet and returns have been generally good.  Investors who remember Q1 2016 will be thankful for that.
• Value has performed well but is taking a breather after the strong rally that we saw at the end of 2016.
• Europe’s problems continue to fester (Greece isn’t “solved”).  There is a semblance of unity in the face of Brexit negotiations, with Article 50 being “triggered” at the end of March.
• Elsewhere, with one European election down, it’s 1-0 to the “EU establishment” following Geert Wilders’ failure win enough votes to get a place in the governing coalition in the Netherlands.  
• But investors shouldn’t be complacent.  Europe has plenty of unsolved demographic and societal problems.  Marine Le Pen’s campaign still has the legs to carry her through the second round (Trump’s victory is a good example of what voter apathy can lead to).  The polls may say one thing but they’ve been proved wrong on multiple occasions in recent times.
• As far as the UK is concerned, the start of the 2-year negotiating period gives plenty of opportunity to unsettle markets.

Turning to the sectors…

Top sectors

• Asian sectors take the top spots with Asia Pacific ex-Japan and China coming in first and second
• Emerging Markets and Japanese Smaller Companies also feature.  The latter is a small sector but is also one of our Trades of the Decade (more on that here).
• Technology and telecoms makes up the top 5 sectors.  The US rally following Trump’s election has helped these funds, which have large exposures to the US.

Bottom sectors

• Lower risk sectors (UK Gilts, Index-linked Gilts and Global Bonds) dominate the bottom table; investors have moved from these areas into “riskier” parts of the market.
• Targeted Absolute Return is notable for its poor average performance and large range of returns over the quarter.
• Property also suffers from the mixed nature of the sector, with the second largest range of returns of the sectors shown, just behind Targeted Absolute Return.  

Upcoming events

• Frexit?  A victory for Marine Le Pen would unsettle markets…but even then there are significant hurdles to be overcome before she can make good on promises such as leaving the Euro.
• Greece.  Still bubbling away (on its third bailout package).  Eurozone finance ministers are due to “discuss the state of Greek negotiations” on Friday.  But don’t expect a resolution.
• China’s 19th Party Conference comes up in the autumn.  Expect stability to be high up on the Party’s agenda between now and then. 
• Can Trump recover?  Paddy Power offers 11/10 odds that he’ll be impeached in his first term, but calling the “End of Trump” may be premature.  Still, failure to push through his healthcare bill makes the next big thing – corporate tax reform – even more critical.
• Value cycle: If the rally ends now it would be the shortest Value rally in last 40 years.  If we see gradual recovery, falling unemployment and gently rising rates should be positive (more here).
• Oil leak?  Outside of the US (where increases in shale production can keep a lid on oil prices) inventories of crude oil should fall if OPEC production cuts stick.  Natural resources funds have struggled recently but a sustained recovery in global growth would continue to support oil prices and demand for commodities (as long as we steer clear of political shocks…)
• Political uncertainty.  There’s plenty to consider here.  US-China trade wars or head-banging over North Korea?  Syria, Yemen, Saudi Arabia…but don’t let that leave you like a “deer in the headlights”.  An investment plan followed with discipline should help you to keep your cool regardless of what the remainder of 2017 brings. 

FURTHER READING

• Value funds up sharply.  Early days?
• Many jewels in the Asian crown
• Politics and investment in 2017

Table 1: Top 5 sectors

Table 2: Bottom 5 sectors

Notes

Universe: Retail UT/OEICs. Highest and lowest returns and range are calculated using a £50m size limit on funds.  The 1st quarter performance sector average is the unfiltered sector, so includes funds with <£50m.