In a “surprise” twist, China funds topped performance tables last month as concerns over a coronavirus slowdown weighed on investors, wiping trillions of pounds off markets.
Seven out of 10 of the best performers in February were China funds, including Matthews China Small Companies, which generated the highest returns over the period (12.6%).
Barings and Gam had two China funds each in the top 10, with the pint-sized $25.4m (£19.79m) Barings China Select fund snagging the third top spot, while Franklin Templeton’s $392.7m (£307.3m) China fund also featured.
| Funds – February 2020 (top ten) | Return % |
| Matthews China Small Companies | +12.61 |
| Threadneedle Property* | +7.1 |
| Barings China Select | +6.81 |
| NB Uncorrelated Strategies | +6.5 |
| GAM Multistock China Evolution | +6.16 |
| GAM Star China Equity | +6.1 |
| Barings Hong Kong China | +5.87 |
| Templeton China | +5.73 |
| Fidelity China Opportunities | +5.68 |
| Pimco GIS Euro Long Average Duration | +5.57 |
Source: FE Fundinfo
‘Peak anxiety’ in China peters out
Fairview Investing consultant Ben Yearsley said the strong showing from China funds was a “surprise” and “counter-intuitive” considering the upset coronavirus caused for global markets last month.
While the outbreak has weighed on markets since mid-January, they have begun reacting more violently recently as the number of cases across Europe, the Middle East and Asia has risen. Around $5trn was wiped off major stockmarkets in the final week of February alone with the FTSE 100 shedding £200bn.
“China was the surprise performer last month – though, for context, it was one of the worst in January,” Yearsley said. “The actions of the government appear to have slowed the spread of the virus and add in the announced stimulus measures and it’s no wonder investors are looking to the future already,” he added.
Willis Owen head of personal investing Adrian Lowcock said the coronavirus impact on Chinese markets has been more stock specific, meaning China funds have been “less sensitive to the panic we have seen in the West”.
The strongest performer of the period, the Matthews China Small Companies fund, has 35% of its portfolio invested in medical waste recycling and medical diagnostics companies which would have actually benefit from the coronavirus, Yearsley noted.
Developed market sell-off ‘broad and indiscriminate’
By contrast the recent sell-off in developed markets has been “broad and indiscriminate,” said Tilney managing director Jason Hollands.
“In China new infection rates have slowed and the return to work has gathered pace,” he said. “In contrast, the negative market reaction elsewhere has really only kicked in over the last week as evidence has clearly shown that the virus has spread into developed markets, sparked in particularly by the surge reported cases in Italy a week ago.
“What the performance data suggests is that peak anxiety with regards to the epicentre in China may now have passed, but the focus has firmly shifted towards the potential disruptive impact in developed markets where the sell-off has been broad and indiscriminate,” he said.
UK equities slump continues
UK equity funds were caught up in the broad sell-off, accounting for three of the five worst IA sectors over the period.
UK Smaller Companies lost 10%, surpassed only by Japanese Smaller Companies (-12%), while UK Equity Income and UK All Companies fell 9.6% and 9.3% respectively.
Lowcock said the UK has several sectors that would be sensitive to a coronavirus slowdown, from oil companies to miners, airlines and travel firms.
As coronavirus fears were running high fixed income funds continued to dominate. Four out of five of the top IA categories last month were bond sectors, with the UK Index Linked Gilts beating out China/Greater China, returning 3.1% on average, against the latter’s 2.8%.
