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Investment Trusts - May 2014Open-ended funds hit by China and EMs
After a dire 12 months, the lack of confidence in emerging markets, combined with the slowdown in China, and many of the Bric countries have hit investment trusts as much as their open-ended counterparts.
Figures from the AIC show that the IT Global Emerging Markets sector was the third-worst performing sector in the AIC universe for the 12 months to March 31 2014, delivering a return – based on a £100 lump sum – of 86.58 per cent.
Tim Mitchell, head of sales for investment trusts for JP Morgan Asset Management, says: “Looking at what is underperforming, no surprises is that emerging markets and elements of that have been underperforming. China has been having its own struggles because of the rate of growth slowing, and the shift in the economy there to a more domestic focus.”
He adds further stress has been added through geopolitical issues, most notably the continuing situation between Russia and Ukraine.
But Mr Mitchell points out in spite of this, there remains a sense of equity optimism and an opportunistic nature is appearing among some investors who are considering investing in Russia partly because it has fallen so much.
In addition Brazil has also suffered a “double whammy” as the market has fallen, and at the same time the currency has weakened against sterling.
But with such low values and a potentially wider discount, this can make these investment trusts more attractive to investors who want to get in at the bottom and take advantage when markets rally and the discount narrows.
Mr Mitchell adds: “I do get the impression people are very much underweight emerging markets, and I think that will be the big call this year, whether they will step back into them.”
Meanwhile, other notable stragglers in the past year have been commodities and natural resources, which have fallen out of favour across the board, and specialist technology VCTs.
Technology is a sector that has suffered in the recent past on fears many of the social media and internet stocks that have listed recently are overvalued.
But with the recent results from Apple and Facebook easing concerns of a tech bubble, this could see a turning point.
The link between many of the underperforming investment trust sectors is their exposure to areas of the market that have suffered sell-offs in recent months, but with investor sentiment becoming more bullish across the board, this could be about to change.
Nyree Stewart is features editor at Investment Adviser
