Share markets were able to make decent headway in August despite some growing anxiety over whether the US Federal Reserve might be preparing to wind down its massive pandemic bond-buying program, which has helped economic recovery. All eyes were on the central bank’s annual Jackson Hole meeting (held virtually for the second year running) last week.
As it turned out, these fears were allayed. Reflecting rising Covid cases, Fed chair Jerome Powell outlined a continued accommodative stance, underlying the need to monitor data for signs of persistent broad-based inflation – which it doesn’t really expect to see – and markets cheered the inaction.
Many investors are still cautious that utterances from the Fed doesn’t really square with their observations from the real world, though. Shortages of goods, bottlenecks in transport and chronic lack of labour in some sectors is causing lots or problems and their effects are pushing up prices. It could mean some discomfort for companies somewhere. Either they struggle to fulfil demand and miss out on profits, or the cost of business goes up and creates inflation and/or authorities start withdrawing stimulus in the shorter term and actively slow excess demand. As such, we wouldn’t be surprised to see that 2021’s investment returns turn out to be weighted to the first half of the year.
It was a variety of specialist areas that led the way during the month, notably biotech funds produced some strong returns having had a poor period this year to date. Many UK funds also continued their quiet renaissance, in some cases spurred on by increased merger and acquisition activity and interest from overseas buyers. Some recent research from Schroders found that the UK market’s persistent discount to other developed markets cannot be simply be explained away by the sectoral make-up of the market and the absence of fast-growing tech. Hence international companies and private equity are increasingly running the rule over UK plc.
The list of poorer performing funds for August is dominated by resources specialists, which suffered from falling commodity prices as investor expectations for their inflation receded. This hampered the commodities-dependent Latin American markets too. Gold was under pressure too – something I wrote about on my recent article 'Is gold still an inflation hedge?' here – and gold equities languished even more.
Chinese shares found some stability following an awful run caused by the government’s increasingly interventionalist stance. Beijing’s new approach to the internet sector in particular has rapidly been factored into estimates of future earnings and some investors are now finding the lower valuations too enticing to resist. According to HSBC, the two largest names now have an average price-to-earnings ratio of 23 times, not much higher than the 17 times for the overall market. Yet they are expanding revenues by 40% a year, way ahead of 3% growth of the MSCI China index. There will likely be more volatility as investors weigh up apparently bargain valuations against the uncertain regulatory landscape.
Top 10 funds:
Bottom 10 funds:
Top 10 sectors:
Bottom 10 sectors:
Past performance is not a reliable indicator of future returns. Figures are shown on a % total return basis, bid to bid price with net income reinvested; Source: FE Analytics, data for August 2021: 31/07/2021 to 31/08/2021. Onshore and retail open-ended funds only.
*There are several thousand funds on sale in the UK. The Investment Association divides these into nearly 40 ‘sectors’, broad groupings that help investors and advisers compare funds of similar types before looking in detail at individual funds.
Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.
August’s top and bottom performing funds
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