FE Fundinfo: India, commodities and US dollar high-yield bond funds shine brightest in Q3

Investment Association funds in the India/Indian Subcontinent sector fared best for their performance during Q3 this year, according to data from FE Fundinfo, while European Smaller Companies and Europe Excluding UK funds were left trailing in the dust on losses.

The firm’s data found that, from the 1 July to 30 September this year, the average fund in the IA India/Indian Subcontinent sector achieved a total return of 7.1%, placing it in the top spot overall. The FE team said this was the result of “robust economic growth, strength in the US dollar, and a resilient domestic market”.

“Indian equities also tend to work oppositely to Chinese equities, which suffered last quarter on the back of weakening economic growth,” it added.

The IA Commodity/Natural Resources sector came in second place for its average total return of 4.8%, while the average fund in the USD High Yield Bond sector scooped the bronze medal for an average gain of 3.5% in Q3. Global and European high-yield bond funds also achieved strong returns over the time frame – each at 3.1% respectively.

On the flipside of the coin, funds in the IA Infrastructure sector tumbled by an average of 5.1%, followed closely by UK index-linked gilt funds which lost 4.6% over the quarter.

In terms of the latter, the FE research team supposed that a combination of “delays in government projects, supply chain disruptions, and labour shortages” could have weighed on returns. With the latter, performance suffered as a result of rising interest rates, which pushed inflows into the higher-yielding fixed income sectors.

Elsewhere, European Smaller Companies and Europe Ex UK funds lost an average of 3.7% and 2.3% respectively, which FE suggested was the result of the Chinese and global manufacturing slowdown. The average IA Healthcare fund fell by 3.1%, placing it fourth from the bottom of the list.

Best and worst funds

The list of top five best-performing funds is more esoteric; HANetf Sprott Uranium Miners UCITS ETF led the pack with three-month gains of 47.3%. The next two top performers were also ETFs – both of which track the MSCI Turkey index – with respective returns of 38.3% and 38.1% over the quarter. Guinness Global Energy came in fourth place with a total return of 19.2%, while Schroder ISF Global Energy also fared well having returned 18.2%.

At the other end of the spectrum, BlackRock LifePath 2025-2027 – which provides target-date retirement funds with changing allocations to assets across fixed income, equities, property and commodities – fell by an eye-watering 100% over just three months to the end of September.

Meanwhile, HANetf Electric Vehicle Charging Infrastructure UCITS ETF fell by 26.8%.

This was not the last of the run of bad luck for funds capitalising on alternative energy, with Invesco Solar Energy UCITS ETF and Luxembourg Selection Fund – Active Solar falling by 24% and 22% respectively. In the middle of these for its Q3 losses was HAN Medical Cannabis and Wellness UCITS ETF, which slid by 23%.

Charles Younes, deputy chief investment officer at FE investments, said: “During the summer the markets have finally embraced the higher-for-longer rhetoric on the back of sustained inflationary pressures. Unsurprisingly, sectors with the most interest rates sensitivity have suffered.

“Better than expected macro data, as well as OPEC decisions, have pushed oil price closed to $100. Cyclical equity sectors best benefitted from that trend. Despite the summer optimism, we remain cautious about the global outlook and won’t be surprised if the winners from this summer would be the losers this winter.”