UK gilts enjoyed strong percentage returns last month, superior to any other investment association sector, according to newly released research from investment service provider Willis Owen which was sourced from FE Analytics. Meanwhile, index-linked funds took seven out of the top 10 spots for best performing funds in August, with performance measured from 31st July to 31st August 2019 in pounds sterling on a total return basis.
Gilts sectors dominate August
Index linked gilts based in the UK benefited from a percentage return of 7.6 in August 2019, while UK gilts generally scored a percentage return of 4.89. Both sectors, which topped the table in first and second place respectively, were well ahead of the chasing pack with sterling corporate bonds, the third best performing sector, having a comparatively slight return of 1.62 percent.
Property, global bonds, and sterling strategic bonds also featured in the ten best performing sectors, with their return percentages measuring between 0.92 and 1.54 percent.
Adrian Lowcock, head of personal investing at Willis Owen believed the results are representative of cautious investor sentiment.
He said: “The start of August coincided with a significant change in sentiment as investors became concerned over the strength of the global economy, and as fears of a recession rose. The US bond yield curve also inverted - meaning longer dated bonds had lower yields than shorter dated ones - which has historically been a leading indicator of recession, although by no means a guarantee.”
At the other end of the spectrum, global emerging markets suffered the most, with negative returns totalling 5.07 percent last month. North American smaller companies and the Asia Pacific (excluding Japan) also recorded poor percentage returns of -4.15 and -3.94 respectively. UK sectors also featured prominently in the lower ranks, with the equity income, all companies and small companies sectors all recording negative returns of three percent or higher.
Mr Lowcock believed that global emerging markets were affected by the surprise result in Argentina’s election, which “sent the stock market plummeting”, falling 48 percent (in US dollar terms) in the course of just one day. This affected smaller companies too, as investors sold themselves out of riskier assets.
Commenting on the UK’s current investment climate, he added: “UK equities featured in the worst performing sectors as the Brexit journey took another twist and continued to weigh on the UK. “
Index-linked funds bring the best returns as Woodford’s woes continue
The report also detailed the best and worst performing funds for the month, revealing that the beleaguered Woodford Equity Income fund, entering its fourth month of suspended trading as the seventh worst performing fund.
Mr Lowcock noted: “Woodford Equity Income is the first fund in the worst performing list not investing in Latin America. Things have gone from bad to worse for Woodford, with the fund suffering some stock specific issues as the embattled manager continues to restructure the portfolio.”
Aside from Woodford’s fund, the impact of Argentina’s crash and the continued sell off in Brazil as a consequence of its sluggish economy meant that funds with significant exposure to Latin America dominated the lower list.
Brown Advisory Latin American fund was the worst performing fund of the month, with negative percentage returns of 13.89. VT Garraway Absolute Equity (-12.92), Neptune Latin America (-12.14), HSBC GIF Brazil Equity (-10.9) and Invesco Latin America UK (-10.55) rounded off the bottom five. Also featuring in the table were Scottish Widows Latin American, Miribaud UK Equity High Alpha, and ASI Latin American Equity. Only tenth placed BlackRock GF Latin American featured in the bottom 10 and did not record a negative percentage return of -10, with a score of -9.96 instead.
At the sunnier end of the spectrum, the Janus Henderson Index-Linked Bond fund topped the charts with a percentage return of 9.4 percent. Its success was representative of the positive results for multiple index-linked bond funds, matching the impressive returns enjoyed by the gilt sectors. ASI Sterling Inflation-Linked Bond (9.11), Fidelity Institutional UK Index Linked Bond (9.01), iShares Index Linked Gilt Index UK (8.97) and the Baillie Gifford Active Index-Linked Gilt Investment fund (8.95) rounded off the top five for percentage returns.
Explaining the results as a consequence of investors' economic concerns, Mr Lowcock said: “Investors have been struggling to keep on top of US-China trade relations and markets have been swayed by the news coming out of both countries.”
This had even led to investors turning back to gold and Mr Lowcock noted it's appearance in the top 10 alongside index-linked funds.
He said: “As such, gold remained in demand as it looks more attractive in a low interest rate environment, especially one where in the region of $17 trillion of bonds are now on negative yields. MFM Junior Gold was again the best performing gold fund for the second month in a row and the only one to feature in the top 10."
Willis Owen has approximately £1 billion of funds under management, and has acted as an intermediary for over 150,000 customers.
