Best performing funds since the markets tanked

Six months on from the fastest stock market falls in history, much of the recovery story has centred around the US and, in particular, its big tech stocks.

Having already led markets for some time before the crisis, the pandemic has given these companies an extra boost, as more and more of our daily lives have gone online.

But behind the headlines, another sector of the market has also done remarkably well: European smaller companies.

European smaller companies stage the biggest comeback

Looking at the sector average returns of all funds and trusts since the market lows of 23 March 2020, those investing in European smaller companies have performed best. The average fund in this sector has returned 47.1%* and the average trust has returned 78.3%*.

Both have beaten the average technology fund and trust, which returned 47%* and 62%* respectively.

Other regions’ smaller companies have also done well. In the funds ‘universe’, US, Japanese and UK smaller companies sectors make up the rest of the top five spaces (technology is second). In the trusts universe global smaller companies are also in the top five*.

European equities got hit particularly hard because, after China, the global pandemic really took hold in Spain and Italy. But European leaders surprised the market and got their act together quickly to put a stimulus package in place. The fact that European stock markets were fairly cheap to begin with and a weakening Sterling vs the Euro (due to Brexit uncertainty) has also helped this region bound back strongly.

And while smaller companies tend to get hit hardest when markets fall, as investors run to safety, the midst of a market panic can also be a great time to buy them – as evidenced by these returns.

Hugh Grieves, co-manager of LF Miton US Opportunities fund, told us why it’s best to invest in smaller companies in the depth of a recession, in this podcast interview back in April:

Gold also shines

Another sector that has largely gone unnoticed is gold – mainly because funds investing in the precious metal are placed in the ‘Specialist’ sector, along with all sorts of different types of offerings from Latin American equities to infrastructure.

But four of the top ten funds of the many hundreds available are all invested in gold equities*.

The price of gold rose above $2,000 an ounce for the first time ever in August. Ned Naylor-Leyland, manager of Merian Gold & Silver fund, explained why in this interview.

Top performing Elite Rated funds and trusts

The performance of our Elite Rated funds and trusts is further evidence of the small-cap bounce. Of the 15 best performing over the period, 11 either invest exclusively in smaller companies or have a bias towards them. A further two are gold funds*.

The best performing Elite Rated portfolio has been Scottish Mortgage Investment trust, which has returned 109.5%*. It is followed by newly rated Baillie Gifford American (106.6%*) and Baillie Gifford Shin Nippon (94&*).

Over the course of what has been a very turbulent year, all 15 of these funds are also in positive territory year to date – and by a very healthy margin in most cases**.

*Source: FE Analytics, total returns in sterling, 23 March 2020 to 30 September 2020, using Investment Association and Investment Trust sector averages.
**Source: FE Analytics, total returns in sterling, 1 January 2020 to 30 September 2020

The views of the author and any people interviewed are their own and do not constitute financial advice. However the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Before you make any investment decision make sure you’re comfortable and fully understand the risks. If you invest in fund or trust make sure you know what specific risks they’re exposed to. Past performance is not a reliable guide to future returns. Remember all investments can fall in value as well as rise, so you could make a loss.