October turned into a “dire month” for markets, as the FTSE fell 3.7% and the S&P 500 slipped 2.1%, creating a difficult landscape for equities across the board.
The top five best-performing sectors all bond-focused, according to data from FE Fundinfo as of today (1 November), including EUR corporate, government, mixed, and high-yield bonds, as well as sterling corporate bonds. Even within these top performers, the highest return was EUR corporate bonds at 0.9%.
Ben Yearsley, director of Fairview Investing, said: “While everything fell in tandem in 2022, bonds appear finally to be at a place where they perform well in a risk-off environment.
“Currency clearly played a part in the positive returns of the euro-denominated sectors last month, but even the sterling corporate bond sector eked out a small gain.”
The worst-faring IA sectors were led by North American Smaller Companies, with a downturn of 7.6%, which was followed by Healthcare, UK Smaller Companies, European Smaller Companies, and UK All Companies. Each of these sectors fell by more than 5%.
“It was a pretty dire month… It’s probably unsurprising when you combine Hamas’s attack on Israel, the ongoing Russian Ukraine war, and a strong US economy putting doubts around whether the Fed has stopped hiking rates,” Yearsley said. “There was no safe equity place to hide except bitcoin which rose 30% (in euros).”
While gains at a sector-wide level were minimal, individual funds found significant rates of success. The Oxeye Hedged Income fund returned 11.6%, topping the list, and funds invested in gold ran the table with the Baker Steel Gold & Precious Metals, BlackRock Gold & General, Quilter Precious Metals Equity, Ninety One Global Gold, and Ruffer Gold funds all breaking into the top ten. Argonaut Absolute Return clinched the third spot, with 7.4% gains.
“On the back of gold nearing $2,000 an ounce gold and precious metals funds also had a good month with five entries in the top ten,” Yearsley said. “Turmoil is good for gold. Eastern Europe somewhat surprisingly also had a good month; has the Middle Eastern conflict taken the heat of this region?”
Three Baillie Gifford funds struggled this month – the Baillie Gifford Global Discovery, Healthcare Innovation and Climate Optimism funds – finding themselves in the bottom ten with respective falls of more than 10%. Further climate funds filled out the bottom, including the Guinness Sustainable Energy, Schroder Global Energy Transition, GMO Climate Change Investment and GMO Climate Change Select Investment funds. The biggest fall came from Active Solar, which dropped 15.3%.
“From a fund perspective, it won’t be a surprise to hear that three Baillie Gifford funds are in the bottom ten,” Yearsley said. “Their global small-cap fund (that finished last in September) snuck in with a fall of 11% alongside their Healthcare Innovation fund and the Climate Optimism fund. In fact, if there was a story last month it was the pounding that green and clean energy got.”
Within investment trusts, the British & American trust led the sector with a return of 29.6%. Digital 9 Infrastructure also found some footing with a 20% increase after falling 34% in October. The leasing sector led the pack with an average return of 1.2%.