The sector bucking the negative returns trend

The sector bucking the negative returns trend

UK Gilts were the only investment to see a positive performance last month, albeit providing investors with a meagre 1.6 per cent of returns.

While markets tumbled as the world came to grips with the coronavirus outbreak in March, the IA UK Gilts Sector was the best performing category and the only sector to provide any relief to investors, who had been dealt falling equities and crashing oil prices.

Other, relatively speaking, strong performers included the UK Direct Property sector, which lost 1.7 per cent over the month of March, while the UK Index-Linked Gilts, Japanese Smaller Companies and Japan sectors all lost less than 4 per cent.

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Top 5 Sectors — March 2020
Fund SectorsReturn (%)
UK Gilts1.64
UK Direct Property-1.71
UK Index Linked Gilts-2.81
Japanese Smaller Companies-2.89

The property sector held up well despite a catalogue of property funds being suspended after turbulent market conditions made it difficult to value the property owned by the funds with the same degree of certainty as would otherwise have been the case.

But Ben Yearsley, investment consultant at Fairview Investment, said the sector would likely fall further. He added: “The IA Other Property sector fell 16.22 per cent, which probably indicates what will happen to direct property in due course.”

UK Smaller Companies was the worst performing sector of the month, tumbling 22.5 per cent as businesses were told to shut their doors to curb the pandemic.

The UK Equity Income and UK All Companies sectors fared little better.

Small businesses suffered around the globe, with the European and North American Smaller Companies sectors also making the worst performing sectors for March, after falling 17.2 and 16.7 per cent respectively.

Bottom 5 Sectors — March 2020
Fund SectorsReturn (%)
UK Smaller Companies-22.56
UK All Companies-18.51
UK Equity Income-18.42
European Smaller Companies-17.22
North American Smaller Companies-16.72

Philip Milton, chartered wealth manager at Philip J Milton & Company, said it was “no surprise” smaller companies had been the most impacted by the pandemic.

Tom Sparke, investment manager at GDIM, agreed, but said it was an area in which “an indiscriminate sell-off, possibly via ETFs, has exacerbated falls in certain areas”. 

He added: “Longer-term I think this will provide some excellent opportunities and I would hope that April’s numbers show a very different picture, with higher risk areas leading the charts.”

In terms of funds, those affected by the oil price crash — caused by a lack of demand due to the coronavirus and an excess of supply from the Saudi-Russia price war — were prevalent among the worst performers.

According to FE Analytics, the Schroder ISF Global Energy fund lost 44.6 per cent over the month of March, followed by MFM Junior Oils Trust with 37.8 per cent wiped from the portfolio.

The oil price is also reflected in the poor performance of Latin American funds, which have large mining and oil positions.

Bright spots included the Argonaut Absolute Return fund, which rose 15 per cent, and Lindsell Train’s Japanese Equity fund, which returned 10.5 per cent over the month.

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