May’s top and bottom performing funds

Following a quiet April when there was relatively little in the way of market movements, May provided some pockets of strength in large technology companies and to a lesser degree in Japanese, Indian and Latin American shares. Yet global stock markets made little progress overall amid stalling US debt ceiling talks and lingering regional banking troubles in the US. In the UK, inflation proved stubbornly high, sending government bond yields up and prices down.

Tech wins out

The strength in technology giants has been a characteristic of the first quarter of the year, and this extended further in May with chip giant NVIDIA the standout. The company, which designs the graphics processing units essential for training Artificial Intelligence (AI) large language models, announced better-than-expected forward guidance, with revenue expected to be 50% higher this quarter than last as the demand for AI chips soars. The share price rocketed 25% in the aftermath and the company is nearing a trillion-dollar valuation.

With NVIDIA set to be selling shovels in the AI gold rush, and decent results from other big tech names over the month, it was a narrow band of stocks that dominated returns, as they have for much of the year to date. With Apple, Microsoft and Amazon all up around 40% in dollar terms in 2023 thus far, the Nasdaq US growth index is up by nearly a quarter. Yet smaller and less-profitable companies are generally languishing in comparison to the mega caps, more directly feeling the effects of higher interest rates and, in some cases, an increasingly fatigued consumer.

Wilting gilts

UK government bond prices fell and yields soared to levels not seen since last September’s Mini Budget following the release of worse-than-expected UK inflation data. The UK headline CPI rate of 8.7% in April surprised to the upside, defying economist expectations of 8.2% as well as the 8.4% projection from the Bank of England earlier in the month.

This most likely means a higher trajectory for interest rates than previously expected. Solid retail sales are making matters harder for the Bank of England and markets now price a peak rate of 5.5% before subsiding. Consequently, the biggest yield moves were at the short end of the curve with the 1-year gilt yield hitting 4.9% and the 2-year 4.5%. In the US too there was pressure on government bonds. Signs of a resilient consumer and persistent inflation pressures led to a jump in short-term US Treasury yields.

Land of the rising shares

Japan’s Nikkei 225 index hit highs last seen in 1990 as yen weakness provided a boost. The Bank of Japan has continued to pursue loose monetary policy in the face of global inflation, and the yen has sold off against other currencies, improving the competitiveness of Japanese exports. There have also been supportive growth numbers with both Japan and Korea doing well from the trend of companies exiting China for goods and manufacturing.

The Japanese domestic economy is also looking less anaemic with wage growth supportive of consumer spending. Japanese equities have experienced many false dawns over the years, having been perennially cheap, but perhaps now the land of the rising sun is showing that bit more promise. The Nikkei 225 Index has jumped by a fifth on a total return basis since the start of the year, easily outpacing the global MSCI AC World Index which returned 8.5%.

China and commodities stall

Asian share markets lagged as a batch of disappointing indicators pointed to weaker growth in China. Investors are dialling back expectations for the world’s second-biggest economy as worries mount that its recovery from pandemic restrictions has lost momentum. Broad Chinese market indices have lost around 20% since the peak in January, putting them in bear market territory.

Commodity prices were mostly lower as a result and mining and energy stocks were under pressure. This hampered UK share market returns, although the normally resource-dependent Latin America bucked the trend. The gold price also fell back amid renewed strength in the US dollar, which is a perennial headwind for bullion. Investors were divided on whether a June hike from the Federal Reserve will transpire amid inflationary pressures and a tight jobs market, which could further bolster the dollar.

Although investors should be aware past performance is not a reliable indicator of future results, here are the top and bottom ten Investment Association (IA) funds and sectors* for May 2023:

Top 10 funds:

Bottom 10 funds:

Top 10 sectors:

Bottom 10 sectors:

The value of investments can fall as well as rise. Investors may get back less than invested. Past performance is not a reliable guide to future returns. Figures are shown on a % total return basis, bid to bid price with net income reinvested; Source: FE Analytics, data for May 2023: 30/04/2023 to 31/05/2023. Onshore and retail open-ended funds only.

*There are several thousand funds on sale in the UK. The Investment Association divides these into about 45 sectors, broad groupings that help investors and advisers compare funds of similar types before looking in detail at individual funds.