Gold equities funds performed the best in April

Niche funds investing in gold mining equities performed the best in April, says Jason Hollands, MD of Tilney Bestinvest

Gold equities funds performed the best in April

A quick peak below at the best and worst performing Investment Association fund sectors in April (based on sector average performance) reveals that, despite the endless talk about the damage and “uncertainty” being caused by the Brexit debate and a net £430m stampede out of UK equities by retail investors in March which may have been partly driven by such fears, UK assets actually performed quite well during the month. But the main winner was gold.

The UK All Companies, UK Smaller Companies and UK Equity & Bond Income and Sterling Corporate Bond sectors were all in the top 10 performing of the 37 Investment Association sectors during the month. The UK Property sector and UK Equity Income sectors were flat over the month. In contrast, the sector average performance from North American, Asian funds and Global Emerging Markets funds were all negative.

Top 10 performing sectors in April

IA Specialist
IA £ High Yield
IA Japan
IA Global Emerging Markets Bond
IA North American Smaller Companies
IA UK All Companies
IA £ Strategic Bond
IA UK Smaller Companies
IA UK Equity & Bond Income
IA £ Corporate Bond


10 worst performing sectors IA sectors in April

IA Asia Pacific Including Japan NR
IA North America
IA Global Emerging Markets
IA Japanese Smaller Companies
IA UK Gilt
IA Asia Pacific Excluding Japan
IA European Smaller Companies
IA China/Greater China
IA UK Index Linked Gilt
IA Technology & Telecoms


The best sector overall however was the Specialist sector, which is down to the fact that this bag of misfits is where commodity funds and regional emerging market funds – notably those investing in Latin America – lurk. Commodities have staged a surprisingly strong rally in recent months from their nadir – with some fingers pointing at the influence of Chinese private investors punting commodity futures – but above all it was niche funds investing in gold mining equities that shot the lights out during the month, as the table below of the top 10 overall funds plainly shows:

Top 10 overall funds

Junior Gold Specialist
WAY Charteris Gold Portfolio Elite I Acc Specialist
SF Webb Capital Smaller Companies Gold Specialist
Smith & Williamson Global Gold & Resources B Inc Specialist
Schroder ISF Global Energy GBP A Dis Global
Old Mutual Gold & Silver R GBP Specialist
Investec Global Gold I Acc Net GBP Specialist
CF Ruffer Gold Inst Acc Specialist
TM Fulcrum Diversified Growth EUR A Mixed 40-85% Shares  
Old Mutual Blackrock Gold & General GBP Acc Specialist  


Gold mining

Gold has clearly returned to favour with investors in 2016 with bullion prices rising strongly since early December 2015, tracking a weakening of the US dollar (there is a well-established inverse correlation between gold prices and the US dollar). The revival in fortunes for physical gold – an asset investors traditionally flock to as a store of value at times of uncertainty or panic – is symptomatic of growing concerns over global growth and the fact that some investors have lost faith in the ability of central banks to navigate market hazards. QE is increasingly becoming discredited as a policy tool and the likes of the European Central Bank and Bank of Japan have been grasping at new straws, introducing negative interest rates.

Gold mining shares are effectively a geared play on gold prices, heavily magnifying movements in bullion. These businesses have high operating costs so even modest changes of prices can make a big differences in profitability, but the rally has also been helped by a reduction in gold-mine output as businesses battened down the hatches last year, cutting costs on exploration. Gold equities funds are notoriously volatile and not for the feint hearted. Whether the upward trend in gold proves sustainable or a blip will in large part depend on the next move by the US Federal Reserve on interest rates and how this feeds through to the dollar.

Following behind the gold funds in the performance stakes during April were oil, energy and resources funds. Latin American equity markets also surged ahead, as markets responded with euphoria as Brazil edged towards the impeachment of President Dilma Rousseff, signalling the beginning of the end for her disastrous mismanagement of the Brazilian economy and public finances.

We’re certainly seeing tentative signs of a turn in sentiment towards emerging markets from asset management groups, as dollar weakening and an apparent bottoming out of the commodities rout has eased pressure on emerging market equities which are trading at a deep discount to developed markets after years of underperformance. The biggest risk to this scenario in our view remains China, which has engaged in another bout of credit expansion, the benefits of which may turn out to be short lived.

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