Where’s the clever money going? July 2017

As we head into the second half of 2017, a number of commentators have been reviewing performance over the eventful first six months of the year.

With the inauguration of Donald Trump as US president to the triggering of Article 50, a French election shake-up and arguably the worst election campaign since Neil Kinnock’s in 1999, H1 has been far from dull.

Markets seem to have taken events in their stride, however, with investor confidence remaining strong. Many indices have reached or neared all-time highs during the last six months, despite signs of weakening growth in some economies.

The FTSE 100 index strengthened modestly, rising 2.4% to the end of June – but a month earlier it was up 5% since January: much of its gain was wiped out by a difficult June.

However, even without June’s losses, the blue-chip index was outclassed by its smaller cap counterparts over the half-year – the FTSE 250 was up 7% and the AIM index gained a meaty 14% over the first six months.

Blue chips were not helped by the pound’s movements during this time. Sterling is up more than 5% against the dollar, though it has weakened 2% against the euro as economic growth has picked up on the Continent.

Against that backdrop, it’s unsurprising that European Smaller Companies top the fund sector tables for the half-year, closely followed by China and Asia Pacific:


Top performing fund sectors over H1 2017

European Smaller Cos +17.3%
China +17.2%
Asia Pacific ex Japan +14.3%
UK Smaller Cos +14.0%
Tech & Telecoms +13.6%


Poorest performing sectors

Targeted Absolute Return +1.9%
Global Bonds +1.6%
US Smaller Cos +0.9%
UK Gilts +0.3%
UK Index-linked Gilts -0.7%


‘Europe and Asia are two of the bright spots investing world currently in my view. Both have been fairly well overlooked and Asia especially looks good value on many different metrics. At the other end of the tables, index linked gilts was the worst performing sector; indeed many bond managers think they look expensive today, [particularly given] higher prospects of an early rate rise,’ says Ben Yearsley of Shore Financial Planning.

Among investment trusts there’s been a similar pattern, according to the Association of Investment Companies. The average trust returned 10% in terms of total returns (including dividends) – but the strongest sectors far outpaced that. Average discounts also narrowed, from 3.8 to 1.7 per cent.


Top performing investment trust sectors over H1 2017

European Smaller Cos +32.3%
Japanese Smaller Cos +22.8%
Europe +22.1%
Country Specialists – Asia Pacific +20.4%
Property Direct – Europe +18.9%


The first half of the year also brought good news for income seekers, with Capita’s Q2 UK Dividend Monitor reporting UK dividends at an all-time high of £33.3bn for Q2, up 14.5% on the same time last year.

The increases are down to ‘robust underlying growth, high special dividends and large FX gains,’ according to Capita. Even without the one-off specials and currency effects, dividends still rose by almost 8% – the fastest growth in two years.

June, in contrast to earlier months, has proved to be a grim one for UK markets. The FTSE 100 fell more than 200 points, almost 2.8%. Only a handful of fund sectors managed positive returns, including Japan, Japan Smaller Cos, Asia Pacific and China, while among the investment trust sectors only Sector Specialist – Biotech and Healthcare achieved a rise.

Nonetheless some strong performances were recorded from individual funds and trusts. Money Observer has published details of the top ten returns from funds over the month of June, which include an impressive showing from biotech and healthcare funds, as well as financials:


Top performing funds over 1 month

Pictet Biotech +8.8%
Axa Fram Biotech +8.3%
Polar Cap Healthcare Opps +6.1%
Polar Cap Biotech +6.1%
Guinness Best of China +4%
VT de Lisle America +3.9%
JPM Global Financials +3.6%
Neptune Japan Opps +3.5%
Axa Fram Financials +3.5%
New Capital China Equity +3.4%

For investment trusts, the line-up for the month looks like this, with private equity (including LMS and HgCapital) and property specialists in evidence. Establishment, a mixed asset trust, is a wild card in the line-up.


Top performing trusts over 1 month

LMS Capital 16.30%
Alternative Liquidity Fund 13.40%
HgCapital 10.80%
Aberdeen Private Equity 9.60%
Vietnam Enterprise 8.90%
Phoenix Spree Deutschland 8.50%
Schroder Euro Real Estate 8.40%
Biotech Growth 7.90%
Fidelity Japanese Values 7.80%
Establishment IT 7.60%

On the Interactive Investor website, the 10 most popular funds with clients have changed little:

Most-bought funds in June
  1. Fundsmith Equity
  2. Lindsell Train Global Equity
  3. CF Woodford Equity Income
  4. Vanguard Lifestrategy 80% Equity
  5. Jupiter India
  6. Vanguard Lifestrategy 100% Equity
  7. HSBC FTSE All Share Index
  8. Artemis Global Income
  9. Vanguard FTSE Developed World ex UK
  10. Vanguard Lifestrategy 60% Equity

While the two top slots are dominated by global heavyweights with a focus on quality stockpicking, five of the top 10 are passive funds, underscoring the continuing interest in index trackers as the long bull market persists.

Investment trust choices were dominated by the big global players, with a couple of European trusts also on the radar as interest picks up in that market. Interestingly, however, the presence of the defensive RIT Capital does suggest a number of nervous clients are looking to batten down the hatches:

Most-bought trusts in June
  1. Scottish Mortgage
  2. Witan
  3. Woodford Patient Capital
  4. City of London
  5. Finsbury Growth & Income
  6. RIT Capital Partners
  7. TR European Growth
  8. Foreign & Colonial
  9. Monks
  10. Jupiter European Opportunities

More generally, investors with an eye on environmental issues will be interested to know it’s now possible to compare funds on the basis of their climate impact, with the launch this month of the Climetrics ratings.

Only 8% of funds in the universe of over 2500 funds available in the UK have received the top five-leaf rating, and just 10 asset managers have one or more funds with a five-leaf rating.


Top-rated funds include:
  • EdenTree Amity International A
  • Rathbone Global Opportunities
  • Stewart Investors Worldwide Sustainability
  • Liontrust SF Global Growth
  • Old Mutual Newton Global Income

Elsewhere, the AIC has spoken to analysts and pulled together a selection of investment trust ‘rising stars’ – the up-and-coming managers to watch in coming months and years.

Paul Major, co-manager on the recently launched BB Healthcare Trust, is picked by Anthony Leatham at Peel Hunt LLP. He has 18 years’ experience in the sector and ‘is able to express his stock picking skill in this very concentrated (max 35 stock) portfolio,’ says Leatham.

Ross Teverson, lead manager on the Jupiter Emerging and Frontier Income trust, also has 15 years’ experience and an impressive track record in emerging markets under his belt. Leatham likes his ‘disarmingly intuitive focus on companies which are undergoing change, combined with an unconstrained mandate, accessing stocks from across the market cap spectrum and going beyond emerging into frontier markets.’

Guy Anderson of Mercantile IT is the pick of Emma Bird at Winterflood. She says: ‘The manager’s passion about the individual stocks in which he invests is evident and the fund has started to show signs of a turnaround in performance since his role was expanded just over two years ago.’

James Goldstone, who took over Keystone IT from Mark Barnett in April, ‘has already put his stamp on the portfolio… placing a greater emphasis on valuation,’ according to Ewan Lovett-Turner of Numis.

Laura Foll, who works alongside James Henderson on Lowland and Law Debenture, is also one of his tips. ‘I’ve been impressed by Laura’s deep stock specific knowledge and I expect her to have a bright future,’ he says.

Looking ahead, what should investors be aware of for the second half of the year? The Share Centre has some ideas.

‘Elections in Germany and Italy have the potential to keep risks elevated in Europe,’ says Sheridan Admans. ‘Meanwhile in the US, Trump’s policies remain a concern; delays to key ones such as repealing Obamacare and pushing through tax reforms, coupled with underwhelming economic data, could be the dampener a peaking US stock market needs.’

He reckons the recent rise in UK inflation ‘could be short-lived, as OPEC’s weaker than hoped for agreement to cut supply continues to be challenged by a relentless rise in US drilling’. He adds that ‘while commodities should do well in an inflationary environment, the market seems of the view that inflation will slow towards the back-end on 2017 after peaking in late summer.’

Admans adds: ‘With volatility so low and with little ahead to shake it up, heading into the summer we could see markets become range-bound. “Sell in May and go away,” the saying goes. Time will tell, but if the first half of 2017 was anything to go by, investors might do well to sit tight this summer!’


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