The month of August, which began with a stock selloff and buzzed with interest rate discussions in both the UK and the US, was a “mixed bag” when it came to market and fund trends, according to Ben Yearsley, director of Fairview Investing Limited.
“August was a peculiar month starting with a near 20% fall in the Topix and Nikkei over about two days, followed by a swift(ish) rebound – in fact, the Nikkei ended up in August albeit marginally,” Yearsley said.
“Other markets caught the downdraft, but not in such a severe way. The unwinding of the yen carry trade was blamed – essentially borrowing in yen due to ultra-low rates and using the proceeds elsewhere. However, fears over a US slowdown also contributed. It was painful for a day then normal service resumed.”
The market dip raised questions of whether the Federal Reserve had waited too long to cut, but chair Jerome Powell hinted strongly at the Jackson Hole Economic Symposium that the first rate cut of the year would arrive in September. The next committee meeting will take place on 17-18 September. Despite the attention on the US, Yearsley noted that the Hang Seng was the best-performing major market of the month, increasing by near 4% in the month and near 10% over the year as a whole.
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By fund sector, Yearsley said there was “no discernible trend” to the charts. The top five fund sectors included property other, healthcare, Europe including UK, sterling high yield, and financials and financial innovations. On the bottom end, North American smaller companies, China/Greater China, commodity/natural resources, India/India subcontinent and USD government bond all featured negative returns.
“Property Other topped the open-ended fund tables with a return of 2.4% – clearly a UK rate cut has helped this sector. The high yield bond sector also made an appearance in the top five delivering a return of 1.16% – although not directly impacted by the BoE rate cut, it won’t have hindered bonds in this space,” Yearsley said.
“At the foot of the tables, North American Smaller Companies propped all others falling 3.33%. Of course, the US dollar falling more than 2% against sterling hindered returns both for this and the USD Government Bond sector that fell 1%. The latter sector offset chair Powell’s rate cut comments with a weakened dollar. Even a strong Hang Seng couldn’t stop the China sector featuring in the bottom five in August.”
By individual fund, the Kernow Equity Navigator was the best performer at an 8.35% return, according to FE Analytics, followed by BNY Mellon Brazil Equity, Ruffer Gold, HSBC Brazil Equity, and Wellington Fintech Fund all with returns over 5%.
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“The lack of trend was evident here too,” Yearsley said.
“The Kernow Navigator fund topped the tables with an excellent return of 8.35% in August. This long short all-cap UK equity fund is small but has had a strong 2024 up about 15%. Elsewhere in the top 10, Brazil funds feature twice – maybe the weak US dollar is having an impact? Newly launched Blackfinch NextGen Infrastructure makes a top 10 appearance for the first time – clearly a beneficiary of rate cuts. Japan, Israel, gold, and bonds all feature – it really feels like the most random top 10 seen in 2024.”
According to FE fundinfo, the worst-performing funds of the month included Active Solar, losing 8.1%; New Capital Japan Equity; Amundi US Treasury Bond 1-3 year; Guinness China A Shares; and Fisher China A Shares Equity.
“The worst performing funds were equally random with solar, Japan, US Treasuries, China, US Small Cap and Eastern Europe featuring. All with different drivers though arguably the weak US dollar was at fault partially for the US treasuries and US small cap falls,” Yearsley said.
Investment trusts, however, had some high performers in August, with the PRS REIT gaining 16.71% and the Doric Nimrod Air Two up 13.65%.
“Like the open-ended world, property had a strong month. Investment trusts have more property sectors than OEICs due to more niches so seeing two property sectors in the top five isn’t necessarily a surprise. Property UK Residential topped the tables with a gain of 7.5% and alongside Property UK Healthcare, Infrastructure, and Leasing could be considered beneficiaries of the recent rate cut,” Yearsley said.
