UK leads worst performing sectors as COVID-19 crisis hits sterling and dividends. Willis Owen reveals the best & worst sectors and funds in 1st half of 2020
Adrian Lowcock, Head of Personal Investing, Willis Owen says:
The first 6 months of 2020 have been amongst the most volatile markets every recorded as large parts of the world entered into lockdowns. The impact on stock markets of the spread of coronavirus was a rapid and severe sell-off as investors weighed up the economic cost of shops, bars and restaurants being closed as well as most travel and tourism.
However, due to equally quick government and central bank actions, markets staged a strong rebound, led by technology stocks. Technology companies have been huge beneficiaries of the lockdown as companies and people turn to digital services to carry on working and living their lives.
Chinese shares also performed well as the country was first to go into and out of a lockdown, one which had successfully contained the virus. The economic recovery in China has been reassuring for investors and helped drive the markets higher, helped by its technology exposure.
Government bonds had a strong six months as they once again proved their reputation as a safe haven when stock markets were tumbling. The performance of UK Index Linked gilts was boosted by two interest rate cuts, to 0.1%, and further quantitative easing along with large programmes to support jobs and fiscal stimulus – all of which might create inflation (although this is likely to materialise in the longer term).
The Morgan Stanley US Growth fund lead the way due a combination of technology and healthcare stocks. Similarly Matthews China Small Companies benefited from exposure the same sectors as well as the recovery seen in the Chinese markets. Rounding off the top three is LF Ruffer Gold. Gold finished the 1st half of the year breaking through $1,800 as the equity rally slowed and investors grew concerned over a second wave of the virus.
10 best-performing sectors
|
Investment Association Sector |
Percentage |
|
Technology & Telecommunications |
20.07 |
|
UK Index Linked Gilts |
13.69 |
|
China/Greater China |
12.97 |
|
UK Gilts |
10.14 |
|
Global Bonds |
6.21 |
|
Asia Pacific Including Japan |
5.36 |
|
North America |
3.05 |
|
Sterling Corporate Bond |
2.73 |
|
Global EM Bonds Hard Currency |
2.41 |
|
Global EM Bonds Blended |
2.03 |
Source: FE Analytics, performance from 31st December 2019 to 30th June 2020 in pounds sterling on a total return basis
10 best-performing funds
|
Funds |
Percentage |
|
Morg Stnly US Growth in GB |
64.17 |
|
Matthews China Small Companies in GB |
63.23 |
|
LF Ruffer Gold in GB |
55.97 |
|
Baillie Gifford American TR in GB** |
54.06 |
|
LF Access Long Term Global Growth Investment TR in GB |
47.79 |
|
Baillie Gifford Long Term Global Growth Investment in GB |
47 |
|
Morg Stnly US Advantage in GB |
41.56 |
|
Morgan Stanley US Advantage in GB |
37.98 |
|
New Capital US Future Leaders in GB |
37.3 |
|
MFM Junior Gold in GB |
36.41 |
Source: FE Analytics, performance from 31st December 2019 to 30th June 2020 in pounds sterling on a total return basis
“The UK Equity income sector led the worst performers for the first half of the year as companies rushed to cut dividends, some were necessary, some were prudent and some cuts were forced upon companies. The rate of dividend cuts in the UK is unprecedented. Many dividend paying companies have lagged in the rally as they sat in areas of the markets not set to benefit from any short-term changes in people’s behaviour – such as energy, financials and insurance. Whilst we expect more to come, the worst is probably over, as British companies acted fast to cut dividends.
Along with dividend cuts the weakness in sterling through the crisis has also helped the UK market to underperform as a weak pound helps improve the performance of international equities. In addition the UK lacks a significant technology sector.
Latin American funds are a main feature of the worst performing top 10 funds. The virus has shifted from Europe to that region of the world and response from governments there has been poor. HSBC GIF Brazil is the worst performer as the country struggles with the virus.
Value funds had a tough crisis, many of the sectors that value funds operated in caught the brunt of the crisis and as with equity income stocks have yet to stage a significant recovery, ASI UK Recovery Equity fund and LF Equity Income were the two worst performers. The former Woodford managed fund is in the process of winding up and made significant repayments to investors in the first six months of the year.
Energy funds are also a feature of the worst performing funds as the oil price went in to free fall as a combination in a collapse in demand and a price war hit the oil price. The situation deteriorated in April as oils traders struggled to find storage
10 worst-performing sectors
|
Investment Association Sector |
Percentage |
|
UK Equity Income |
-20.19 |
|
UK All Companies |
-17.68 |
|
UK Smaller Companies |
-16.59 |
|
UK Equity & Bond Income |
-14.26 |
|
Property Other |
-11.45 |
|
Global Equity Income |
-6.25 |
|
Sterling High Yield |
-5.2 |
|
Global Emerging Markets |
-5.14 |
|
Mixed Investment 40-85% Shares |
-4.29 |
|
Mixed Investment 20-60% Shares |
-4.06 |
Source: FE Analytics, performance from 31st December 2019 to 30th June 2020 in pounds sterling on a total return basis
10 worst-performing funds
|
Funds |
Percentage |
|
ASI UK Recovery Equity in GB |
-42.48 |
|
LF Equity Income TR in GB |
-42.4 |
|
Schroder ISF Global Energy TR in GB |
-39.74 |
|
HSBC GIF Brazil Equity in GB |
-38.53 |
|
Oxeye Capital Management Limited The VT Oxeye Hedged Income Option in GB |
-37.65 |
|
TB Guinness Global Energy in GB |
-36.7 |
|
Guinness Global Energy in GB |
-36.41 |
|
MFS Meridian Latin American Equity in GB |
-34.69 |
|
Aberforth UK Small Companies in GB |
-34.2 |
|
Invesco Latin American (UK) in GB |
-33.69 |
Source: FE Analytics, performance from 31st December 2019 to 30th June 2020 in pounds sterling on a total return basis