But, looking back at the fund performance data for the first six months of the year, it would have been a pretty lucrative call.
According to data from FE Analytics, of the 20 best performing funds for the six months ending June, 13 are Indian equity funds, six are focused on gold equities, in particular junior gold miners, and one is focused on Turkish equities. The best performer in the group, the HSBC GIF Indian Equity AD USD rose 34.75% for the half year.
But, of those twenty funds, only one, the First State, Indian Subcontinent in GB Fund, managed to produce a positive performance over the course of 2013, as well as in the first six months of 2014, which proves the point, Mark Dampier, head of research at Hargreaves Lansdown says, that specialist sectors very frequently, are either first or last.
The outperformers
The performance of the Indian stock market surprised many on the upside, helped as it was by a weak rupee and the stronger-than-expected electoral showing by Narendra Modi, who many expect to be very business friendly.
Gary Reynolds, CIO at Courtiers Investment Services, says the group had a pretty lean time over the six months after a very strong 2013, as it was short gold and not yet into India. But, while he is keen to get into India, gold remains unappealing.
“We didn’t expect Modi to come in with this kind of majority and that has been beneficial for the equities,” he said. But, he added, there is always a risk with politicians; they are often not reliable. And if he proves to be not as supportive to business as people expect, the equities could fall.”
Despite that, Reynolds says, the opinion of the investment team is that there remains more potential within the Asian country.
Gold, on the other hand, is an area that Reynolds remains wary of because he says there is currently more downside than upside to the price. And, he adds, now that most of the producers are unhedged gold companies are very exposed to any falls in the price of the yellow metal.And, he says, “the price has an underbelly to it.”
Phillip Saunders, co-head of the multi-asset team at Investec Asset Management said the group’s view at the start of the year is that equities would grind higher and this has largely panned out.
Investec had a reasonable view on India during the year, but was also surprised with the strength of the move upwards.
On the gold front, he says, his contrarian colleagues have an undiminished enthusiasm for it, but he too is not sold.
“When you beat something up enough, it will eventually bounce,” he pointed out.
Overall, he added: “We have seen a decent underpinning to markets, despite a large amount of bad news. That indicates to me that valuations are rather well supported.”
That said, one sector that did perform worse than some had expected, even though it came after a number of years of strong performance, was the small cap space.
Of the ten worst performing funds over the period, four were smaller companies funds, three were Russian equity funds, two were China equity funds and bringing up the rear was a property fund.
And, of those, only one, the Webb Capital Smaller Companies Gold in GB, also lost money in 2013.
According to Saunders, it still makes sense to have a strategic exposure to small caps.
“I think a lot of people were expecting a larger correction than we actually saw and instead we got a rotational move out of small-caps and into the large and mega-caps,” he added.
No signs of a bubble
And, it is not only gold and India that have wrong-footed investors in the first half of the year, bonds too have performed a lot better than many were expecting them to.
Indeed, Dampier says, most in the markets have misunderstood the financial crisis: “It has been far more extended than people think”.
And, he says, “those that were shouting that there is a bond bubble, have been wrong footed again this year,” adding, “Financial markets and the media have been overdosing on the word bubble lately, using it to describe any asset class that has gone up. I would hate to know what is going to happen when there actually is a bubble.”
How to play it from here?
Saunders is expecting a duller summer than in previous years, because markets need to consolidate somewhat and wait to see whether or not the earnings they are looking for actually start to come through.”
“Earnings remain key. If earnings start to gain traction it should be rather constructive for equities. Especially because many people remain cautious at the moment and, thus have not maxed out their risk exposures yet.
Because earnings have yet to come through decisively, many in the market remain uncertain of exactly what is likely to happen, but what they are certain of is that chasing the gains of the first six months is a sure fire way of losing money.
“You have to but the price now. You need to have strong convictions and good research, chasing returns that you may have missed can only lead to disaster.”
