April was an eventful month: among other things, the tax year ended, the prime minister called a snap election for 8 June, and the Brexit posturing became increasingly vitriolic. Meanwhile across the Channel, the French electorate narrowed down the presidential candidates to just two, while in the US president Trump’s much-heralded tax reforms were greeted with scepticism.
The markets took events pretty much in their stride. The FTSE 100 tracked sideways, hovering around the 7300 mark for much of the month, though it dipped sharply on news of the snap election.
The market wobble was caused by sterling strengthening: the Tories’ lead in the polls and the prospect of a large majority led to a rise of 2.89% versus the dollar over the month and 1.02% against the euro, which in turn knocked internationally oriented blue-chip companies that have benefited from the weak pound.
So which funds and sectors have been the strongest performers, and which have struggled in April? FE statistics show an impressive resurgence for smaller companies. The top-performing funds look like this:
MFM Techinvest Special Situations +8.28%
Octopus UK Micro Cap +8.22%
Chelverton UK Equity Growth +8.03%
Threadneedle UK Smaller Companies +7.91%
M&G Smaller Companies +7.89%
Ben Yearsley of Shore Financial Planning explains: ‘UK smaller companies had an excellent April, with the sector taking the top spot and small cap funds dominating the top fund performers.’ The top five sector performances were as follows:
UK Smaller Companies +5.49%
European Smaller Companies +4.17%
Europe ex UK +1.99%
Europe inc UK +1.44%
UK All Companies +1.42%
At the bottom of the sector table, he notes that ‘from a UK investor’s perspective, Japanese funds had a poor month. However, that was down to sterling’s 3%+ rise against the Yen, as in fact Japanese equities actually went up in April.’
Japan -2.05%
Global Emerging Markets Bonds -2.06%
Asia Pacific inc Japan -2.13%
North America -2.34%
Japanese Smaller Companies -2.86%
Among investment trust sectors, the same preponderance of small companies’ outperformance was evident over the month, according to Trustnet data:
Global smaller companies +8.4%
UK smaller companies +6.2%
European smaller companies +6.1%
Property – securities +5.6%
Europe +5.0%
At the bottom of the table, the commodities & natural resources sector lost 5% in the face of a $2/barrel fall in the price of oil and wider concerns over slowing global growth.
As far as investors are concerned, however, the most popular funds tend to be those focused on ‘quality growth companies’ and run by a handful of leading managers, notably Neil Woodford, Terry Smith and Nick Train. On the Interactive Investor website, for example, the five funds most bought by clients of the broker were:
Fundsmith Equity (+0.5% over month)
CF Woodford Income Focus (new fund launch)
Jupiter India (+1.1%)
CF Woodford Equity Income (+1.1%)
Lindsell Train Global Equity (-1%)
Four of the five next most popular choices were index trackers.
Among the investment trusts most bought in April, big global and UK mainstream trusts continue to dominate the list; again, the pulling power of Nick Train (who manages Finsbury Growth & Income) and Neil Woodford is evident.
Scottish Mortgage (+3.6%)
Witan (+2.8%)
City of London (+2.4%)
Woodford Patient Capital (+1.5%)
Finsbury Growth & Income (+2.7%)
Looking ahead, some commentators have been considering the old exhortation to ‘sell in May and go away, don’t come back till St Leger’s day’. Money Observer rounded up four tips for funds that might now be worth offloading:
1 Ishares Core Gilt ETF: ‘We would see gilts as a particularly overvalued area of the global sovereign bond market and would take profits on this ETF, as we feel fundamentals will come to the fore,’ says Patrick Thomas of Canaccord Genuity.
2 JPMorgan US Smaller Companies: Thomas believes the expected positives for small companies as a result of the Trump election are now priced into small-cap valuations and again it’s time to take profits.
3 Artemis Global Emerging Markets: Emerging markets have rallied from their lows but remain vulnerable to any slowdown in the global economy, particularly those with exposure to commodity prices. ‘This fund also has a significant exposure to China which could be vulnerable in the event of any correction,’ says Adrian Lowcock of Architas.
4 Fundsmith Equity: Gary Millward of Alan Steel Asset Management says: ‘Fundsmith has been a favourite of ours for over five years and is still seeing large inflows; it may be worth taking some profits now and switching to a multi-asset fund like one of David Jane’s Miton funds as a safe place just in case.’
For income seekers, broker Stifel highlighted the 11 equity investment trusts that still offer a yield of 4% plus; the number has fallen from 14 last August as share prices have risen.
European Assets (yield 7 April 6.5%, updated at 6 May 6.0%)
Henderson Far East Income (5.6%, 6 May 5.7%)
BlackRock Commodities (5.2%, 6.0%)
Merchants (5.2%, 5.1%)
Henderson High Income (4.8%, 4.7%)
Dunedin Income Growth (4.6%, 4.5%)
F&C UK High Income (4.6%, 3.5%)
Value and Income (4.5%, 5.3%)
Murray Income (4.3%, 4.0%)
Aberdeen Asian Income (4.1%, 4.3%)
Murray International (4.0%, 3.9%)
Meanwhile on fundexpert.co.uk, Brian Dennehy points out that equity income funds are a good choice even for growth investors who don’t need an income stream right now.
‘Our own research highlights that if you had adopted the high yield strategy since 1900, in 81% of 10 year rolling periods you would have outperformed the stock market as a whole,’ he says. ‘Better still, there was a 93% probability that you would outperform the low yielders (growth stocks if you like).’
He picks out four UK equity income funds that stand out in terms of consistently increasing their dividend payouts, total income paid out and capital growth over the last 10 years:
Total inc and cap growth on £10k invested 2007
Troy Trojan Income £12,978
Schroder Income £11,571
Threadneedle Equity Alpha Income £11,362
JOHCM UK Equity Income £10,740
He also identifies Liontrust Asia Income and Artemis Global Income as great choices for added diversification.
Finally, Jason Hollands of Tilney Bestinvest warns that the US S&P 500 has disappointed for UK investors since Trump was elected.
‘One of the major risks faced by those UK investors who aggressively bought into the Trump-story last autumn is that they deployed their hard earned pounds at a point when sterling was oversold to buy US shares that are standing at historically very expensive valuations on most measures. These investors could be exposed to a double whammy of both a recovery in sterling and a possible bursting of the US equity bubble at some point,’ he cautions.
Hollands likes European markets better in terms of valuation and a pick-up in growth; and he points out there’s more scope of dividend growth in Europe than in the UK.
‘Funds worth considering include Threadneedle European Select, Henderson European Focus, Baring Europe Select, Jupiter European Opportunities investment trust and the Standard Life European Equity Income fund,’ he says.
