Ben Yearsley: China enjoys strong start to 2023 but diversification pays

Funds with exposure to China posted strong returns of 8.5% in January to end the month as the best performing sector, closely followed by tech, which grew 8.34%.

The sector was also the highest returner in the investment trust universe, as Fidelity China Special Situations posted 19.8% returns in the month. JP Morgan China Growth & Income was also among the top five best performing trusts in January.

Ben Yearsley, investment director at Fairview Investing, said: “Sectors, regions and style get written off too quickly. China, bonds and tech are all recent examples where many investors decide they are uninvestable only to see strong rebounds shortly after. It still pays to have a diversified portfolio of different styles and asset classes. The traditional 60/40 portfolio was dead and buried last year but the outlook now looks far better – 60/40 has been resuscitated.”

Meanwhile, investors in India have been hit by nerves ahead of the country’s budget announcement on 1 February. The sector was the worst performing in January, falling 3.4%. Other poor performers were healthcare, US government bonds, and UK direct property.

January fund sector performance

Risk switched on

In terms of individual funds, ‘risk on’ investors enjoyed a solid start to 2023.

Yearsley said: “From an individual fund perspective it was definitely a ‘risk on’ month. You can tell that when you have Baillie Gifford and Morgan Stanley funds in the top 10.

“In fact, Morgan Stanley had three entrants compared to only one from Baillie Gifford – their American fund. T Rowe Price Global Technology took top spot with a 14.1% gain.

“Outside the top 10, it was emerging market funds and high growth that appear dominant.”

Newly-launched Crux UK Smaller Companies returned 13% to place fifth in terms of best performing funds, as UK small caps look to recover from a dismal 2022.

The Argonaut Absolute Return fund fell the most across the first 31 days of the year, with returns dropping 10.4%. However, Yearsley labelled this unsurprising with no high growth or emerging markets in sight.

He added: “The only real theme to emerge from the worst performers was Indian invested funds with short-term nervousness around today’s budget.”

Highest returning funds January 2023

See also: China unleashed as the Year of the Rabbit dawns