The story so far…Asia and Emerging Markets Trumped?

Are you still in soggy sectors or flagging funds?

As we approach the final quarter of 2018 we take a look back at the year to date.  In this first part we look at the main sectors. In part 2 we will look at the top and bottom performing funds.

 

 

North American Smaller Companies and North America sit first and third in the top table. Technology and Telecoms is second and this sector has a big chunk invested in the US (68%).

 

What will surprise many is the performance of UK smaller companies. A long way behind the top 3 in in terms of growth generated, but holding up particularly well in the last 6 months – Brex-what?

 

Smaller Companies generally have done well, with Japanese Smaller Companies and European Smaller Companies also sitting in the top 10 sectors. Smaller companies are often the “canary in the coalmine” so good performance by these sectors is positive. As always, keep an eye out for signs of weakness that could pre-empt a general downturn.

 

The recently split property sectors have also done well. This should help investors distinguish between bricks-and-mortar property funds and those investing in property shares. But it might take a month or two to iron out the creases e.g. Threadneedle Property appears in both sectors at the moment…

 

UK All Companies, Sterling High Yield Bonds, Europe ex-UK and UK Equity Income are all mid-table with fairly flat returns ranging from -0.7% to 0.4%.  

 

The good showing by European Smaller Companies shows that there are areas of strength in Europe for discerning fund managers to exploit. As a whole, European political leaders continues to grapple with populism plus debt and demographic problems – these domestic issues can distract politicians from more fundamental and positive reforms – the curse of the electoral cycle!

 

Towards the bottom of the table are many of the bond sectors – Global and Sterling Corporate and Strategic Bonds. Rising interest rates are generally not helpful, plus the (poor) quality of recent debt issuance is well understood and a persistent worry.

 

The bottom is dominated by Asian and emerging markets, which have been hit by the US dollar strength and US rates heading up. This has the impact of increasing the cost of Asian debt (the volume of which has been going up sharply in recent years) – a large proportion of this is denominated in dollars (going up in value), but repayments are made in local currencies (going down in value). 

 

China is also off sharply. Chinese debt has been an ever-present worry for investors, even though much is domestically held – and profits have been relatively lacklustre. While China continues push ahead with its One Belt One Road initiative and to expand trade links with its neighbours, the trade war with the US creates additional costs and uncertainty. 

 

In part 2 next week we’ll look in more detail at the best and worst individual funds, sector by sector.

 

 

 

 

	Year to date perf %	6 months perf %
North American Smaller Companies	16.5	18.2
Technology & Telecommunications	15.8	11.5
North America	11.7	12.7
UK Smaller Companies	5.0	6.3
Japanese Smaller Companies	4.7	2.2
Global	4.5	6.6
European Smaller Companies	3.5	4.7
UK Direct Property	3.3	2.5
Property Other	2.3	6.8
Global Equity Income	2.2	5.9
Mixed Investment 40-85% Shares	1.2	3.4
Japan	1.1	4.3
Flexible Investment	0.9	2.8
Sterling High Yield	0.4	0.8
UK All Companies	0.4	5.6
UK Equity & Bond Income	0.3	3.6
Europe Excluding UK	0.1	2.8
Volatility Managed	-0.1	2.0
Mixed Investment 20-60% Shares	-0.3	1.8
Mixed Investment 0-35% Shares	-0.6	1.1
UK Equity Income	-0.7	5.1
Targeted Absolute Return	-0.9	-0.4
Global Bonds	-1.1	0.4
Sterling Strategic Bond	-1.5	-0.4
Sterling Corporate Bond	-1.9	-0.3
UK Gilts	-2.0	-0.9
Specialist	-2.2	0.8
UK Index Linked Gilts	-3.9	-1.8
Asia Pacific Excluding Japan	-4.3	-3.1
Global Emerging Markets Bond	-6.4	-4.0
China/Greater China	-7.8	-10.6
Global Emerging Markets	-9.1	-9.0