Investment Outlook - Summer 2017 Edition

Q2 Performance Summary

Despite losing ground in June, the market continued its upwards trajectory in the second quarter with the FTSE All Share making gains of 1.4%. European equities led the charge as fading geopolitical risk and improving fundamentals resulted in returns of 5%. Healthcare rallied by over 3%, as optimism over plans to replace Obamacare gave the sector renewed impetus. Fixed income generally struggled although European bonds outperformed, benefiting from the region’s positive momentum. Oil was the biggest faller at 12.7%, with the Energy sector as a whole making losses in excess of 8%.

Our Recommended Funds list was reflective of this relatively bullish market outlook with 68% of the 63 funds in positive territory. With the FTSE All Share making comparatively modest gains this quarter, almost 50% of funds outperformed this index.  Old Mutual Europe (Ex UK) Smaller Companies ranked first for the quarter, generating gains of 8.6%. Liontrust UK Smaller Companies, Man GLG Undervalued Assets Professional, Veritas Asian and Franklin UK Mid Cap were also strong performers, members of a group of 10 delivering returns above 5%.

As European equity fund inflows reached record weekly highs of $6.1 billion in the quarter, the Macron effect further consolidated their representation at the top of the table. In addition to the sector producing the top performer, Henderson European Selected Opportunities, BlackRock Continental European Income and Jupiter European Special Situations also featured prominently in the top 10.

At the other end of the scale, Guinness Global Energy made losses of 12% with First State Global Resources also suffering to the tune of 8.1%. Excessive oil oversupply and the US shale industry resurgence has driven the biggest first half drop in Brent Crude prices for 19 years. BlackRock Gold and General made up the bottom three as gold came under pressure from rising bond yields and hawkish Federal Reserve sentiment.

Investing across different asset classes and geographies remains a key component in building a fully diversified portfolio. We ensure our Recommended Funds list comprehensively represents skilled fund managers noted for their active investment strategies across a broad range of asset classes.

As we have previously stressed, considering performance numbers from one quarter in isolation does not paint a full picture. These figures should always be considered from an investment perspective which is consistent with your long-term goals.

Source: Morningstar Direct as at 30th June 2017. Total returns in %. Past performance is not a reliable indicator of future returns.

Long-Term Performance Summary

In terms of the 56 funds on our Recommended Funds list with a five-year track record, only two funds delivered a negative return over this time-frame. Almost two-thirds of these funds outperformed the FTSE All Share (65.2%) over this period, encompassing a diverse variety of asset classes.

Over the five year period to 30 June 2017, Old Mutual North American Equity continues to occupy the top spot with a return of 162.1%. An additional 19 funds delivered a five year return exceeding 100%. These include Liontrust UK Smaller Companies, Schroder US Mid Cap, Jupiter India, Artemis Global Income, Henderson Global Technology, Baillie Gifford International, Veritas Asian, and MFM Slater Growth.

With the US bull market appearing to successfully navigate the Trump Slump over the quarter, three US funds feature amongst the top ten performers.

Despite Brexit and political uncertainty weighing heavily on market sentiment over the quarter, UK funds continue to deliver over the long term. From a UK fund perspective, a five year investment in 11 funds would have produced a superior return to the FTSE All Share. Increased market optimism over the region’s economic and political outlook has further consolidated the impressive five year returns of European funds.

As is consistent with last quarter, Asian funds still feature heavily at the top of the list. Funds representing more niche asset classes continue to reward the long term investor, with technology, infrastructure and sustainability recommendations returning over 100%.

First State Global Resources and BlackRock Gold & General are still the only two funds in negative territory over the five year period. Commodities have lagged over the first six months of the year, thus providing little respite for either fund.

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Highest and lowest returning funds

Highest returning funds last quarter

The best performing fund in our Recommended Funds list over the second quarter was Old Mutual Europe Ex UK Smaller Companies, which benefited from the impact of the improving political landscape across Europe combined with a benign economic environment had on individual companies.

The fund has a strong focus on bottom-up stock picking, exploiting the inefficiencies of smaller companies and seeking out those the manager believes are undervalued. He makes rigorous use of price targets and catalysts, adopting a long-term approach.

The second best performing fund over the period was Liontrust UK Smaller Companies. This fund, along with Franklin UK Mid Cap and MFM Slater Growth were beneficiaries of good performance from the FTSE 250 index over the quarter, combined with strong returns from individual companies.

Other European funds Henderson European Selected Opportunities and BlackRock Continental European performed strongly over the quarter, again aided by the improving backdrop across Europe. Europe ex UK equities was the best performing market over Q2.

Highest and lowest returns in Q2 2017

Recommended Funds providing the highest returns in Q2 2017
Old Mutual Europe Ex UK Smaller Companies View report Invest
Liontrust UK Smaller Companies View report Invest
Henderson European Selected Opportunities View report Invest
BlackRock Continental European View report Invest
Man GLG Undervalued Assets View report Invest

Lowest returning funds last quarter

Guinness Global Energy was again the lowest returning fund in our Recommended Funds list over the quarter, falling 12%. The fund’s performance is closely correlated with the oil price, which has continued to come under pressure. 

Resources funds generally struggling over the quarter, with First State Global Resources and BlackRock Gold & General the next two weakest performers. Resource prices have taken a hit during Q2. These two funds, together with Guinness Global Energy, also remain bottom of the pile over five years.

Two US funds, Legg Mason ClearBridge US Aggressive Growth and Legg Mason IF Royce US Smaller Companies, round out the bottom five funds over the period. The US market is being driven by the ‘Trump trade’, which has proven to be a headwind for both funds.

Recommended Funds providing the lowest returns in Q2 2017
Guinness Global Energy View report Invest
First State Global Resources View report Invest
BlackRock Gold & General View report Invest
Legg Mason ClearBridge US Aggressive Growth View report Invest
Legg Mason IF Royce US Smaller Companies View report Invest

Important Information

The information we provide in this Investment Outlook is for information and discussion purposes only and not intended to be a personal recommendation to invest, which means we have not assessed your investing knowledge and experience, your financial situation or your investment objectives.

Investors should be aware that with self-select products or services the value of investments can fall as well as rise unlike cash investments. You may get back less than you invested. Past performance is not a reliable indicator of future performance. 

If you are unsure about the suitability of a particular investment you should speak to a suitably qualified financial adviser.

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