Funds with a focus on technology thrived during the volatile market conditions present in February, according to data from the Investment Association (IA).
Funds in the IA sector Technology and Telecoms sector returned an average of 1.66 per cent in February, superior to the return achieved in any other sector.
Adrian Lowcock, investment director at Architas, said a trend over the past month has been equity investors moving towards defensive assets, such as telecom companies.
He added that as investors become wary of global growth prospects at a time when interest rates are rising, they move to more defensive assets such as telecoms, while technology investments have benefitted from being one of the few areas of the world where growth is obvious.
Top ten IA Sectors
IA Sector | Performance% |
Technology & Telecommunications | 1.66 |
Global Emerging Markets Bond | 0.67 |
Japanese Smaller Companies | 0.33 |
Global Bonds | 0.22 |
Japan | 0.03 |
UK Gilts | 0.03 |
Money Market | 0.01 |
Short Term Money Market | 0.01 |
Protected | -0.11 |
North American Smaller Companies | -0.35 |
Mr Lowcock noted the technology theme is also present in the best performing fund of February, Lindsell Train Japan, which has significant investments in companies such as Nintendo.
Stephen Yiu, who runs the Blue Whale Global Growth fund, said some technology shares remain attractive because they are growing earnings, and have no debt at a time when rates are rising, and debt becomes more expensive.
The next best performing sector was Global Emerging Market bond, where assets benefitted from the fall in the value of the dollar.
This is reflected in the second best performing fund over the February being Fidelity Emerging Market Debt fund.
The worst performing sector in February was IA UK All Companies, which lost 2.9 per cent.
The IA UK Equity and Bond sector lost 2.88 per cent, and the IA UK Equity Income sector lost 2.86 per cent.
The worst performing fund was BlackRock Gold and General, which lost 8.2 per cent.
Mr Lowcock said: "UK equity and European sectors took the brunt of the sell-off in February as investors sought the safety of the US dollar and Japanese yen.
"Whilst the Euro also rose against the pound as focus on Brexit negotiations returned at the end of month. This all meant that UK investors saw the full impact of the market sell-off hit their UK and sterling quoted investments the hardest - as they offered no currency protection.
"Gold and commodities funds had another poor month. Gold usually performs when investors become risk adverse, whilst commodities and energy are more linked to the economic cycle.
"However, all commodities are priced in US dollars so a rise in the value of that currency should cause the price of commodities to fall – if everything else is equal.
"So in the short term, gold funds suffered more from the rebound in the dollar, whilst wider commodities also suffered a setback as fears of a slowdown rose, which would affect demand for commodities in the medium term.
"Blackrock Gold and General primarily invests in mid-sized gold mining companies so also has exposure to the equity market and not just the gold price."
Nitesh Shah, commodities strategist at ETF Securities, said he expects the price of gold to continue to drift downwards in the coming months unless there is a major geopolitical event.
He also thinks the dollar will start to strengthen as US interest rates rise.
David Scott, an adviser at intermediary firm Andrews Gwynne in Leeds, said he expects volatility to continue to be high, with cyclical assets the investments likely to suffer.
He said the extremely low volatility of the past decade is "not natural", and the result of the low interest rate and quantitative easing policies of global central banks.
He said volatility has picked up in recent months because central banks have now decided to prioritise putting interest rates up, and pushing inflation down, ahead of asset price growth, whereas for much of the past decade, it was the other way around.
david.thorpe@ft.com
