Best and worst Rated Fund performers in the second quarter of 2020

Over the course of the quarter, over 80% of the funds produced a double-digit return.

Out of the 258 funds in the Rated Funds universe, just two produced a negative return in the second quarter of 2020.  

Performance among most funds looked strong. Over the course of the quarter, over 80% of the funds produced a double-digit return. Meanwhile, roughly 30% produced a return of 20% of higher and 9% returned investors over 30%.

Of course, those figures must be put into some context. The quarter being measured encompassed the months April, May and June, almost exactly aligning with the strong recovery markets staged following the February and March market sell-off. Readers will recall that towards the end of February markets around the world started to wobble as fears over Covid-19 gathered pace. By mid-March fear had risen further and markets were in full-on meltdown mode, with several indices staging their largest one day losses in history.

However, most markets around the world bottomed out by the end of March. The response from the US’s central bank, the Federal Reserve, was robust and decisive. Other central banks and governments also provided well-received support. This seemed to draw a line under market weakness, setting the stage for the strong rebound that lifted our Rated Funds.

Measured from the start of the year to 24 July, these performance figures are slightly less impressive. Compared to a total of just two funds with a negative return over the quarter, around 55% of funds still have a negative year-to-date return. However, 165 of funds had a year-to-date return in the double digits and 5% of funds posted returns of 20% or more.

Gold shines

In terms of the best performing fund over the quarter, Ninety One Global Gold tops the charts. Previously known as Investec Global Gold, the fund has provided a return of 54.6% over the three-month period. The fund’s year-to-date performance is also impressive, with returns of over 49%.

Driving these returns has been the tremendous rise in gold prices since the start of the year. The price of the metal has principally been driven by investors looking for a safe haven. However, also important has been continued low (and in some cases negative) rates, increasing gold’s relative attractiveness compared to bonds. On top of that, the continued strength of the dollar (another expression of market flight to safety) has kept prices up.

All that has benefited the fund, with manager George Cheveley investing primarily in the shares of companies involved in gold mining worldwide. While the fund can also invest a third of assets in companies involved in the mining of other metals and minerals, as at the end of 2019 the fund had 83% of its assets in gold, with 13% in silver (the fund’s gold allocation has since risen to 94%, according to its June 2020 factsheet).

BlackRock World Mining was another beneficiary of the surge in gold prices. Managed by Evy Hambro and Olivia Markham, the trust has returned over 40% over the three-month period. The trust invests in mining shares, giving it a roughly 30% exposure to gold.

American tech

Over the three-month period, most equity markets saw strong rebounds. However, some of the best performers have been tech companies, often those listed in the United States. A consensus appeared to form among markets that the adoption and importance of technology and e-commerce companies would accelerate due to people changing their habits in response to coronavirus. 

As a result, it should come as no surprise that Baillie Gifford American has posted the second strongest three month returns. Managed by Gary Robinson, the fund returned 51.8% over the three-month period. However, that was not just thanks to the market rebounding from a low base after the March crash; measured year-to-date to 24 July, the fund has returned over 65%.

The fund’s largest holding is e-commerce giant Amazon, an obvious beneficiary of people being forced to stay home. On top of that the fund has had exposure to smaller companies that have benefited from the virus, such as virtual doctor company Teladoc as well as the work-from-home essential Zoom.

Other tech-focused funds have been among the top performers. Another Baillie Gifford fund, Edinburgh Worldwide was third on the list with a three month return of 44.8%.

Scottish Mortgage, also a Baillie Gifford-managed trust, posted strong performance with three month returns at 43.3%. As well as holding Amazon, Scottish Mortgage has holdings in Chinese tech giants Alibaba and Tencent. Also boosting returns has been the trust’s large holding in Tesla, which saw its share price roughly double over the three-month period. Another top performer was Allianz Technology Trust. Managed by Walter Price, the trust returned 32% over the three-month period.

Alongside many tech companies having business models suited to the pandemic and resulting lockdown, such businesses also benefited from central banks lowering interest rates in response to the virus. Being “growth” companies, investors buy them with the expectation of strong future earnings. Those future earnings are judged to be worth more than lower present interest rates are, boosting the present price investors are prepared to pay for shares.

Worst performers

The worst performer was BMO Commercial Property, with a three-month return of -15.4%. Year-to-date the fund has lost even more, down -50.8%.

The only other fund with a negative three-month return was Ardevora UK Equity, losing investors 1.3%. The trust had initially had a strong first quarter but has since seen a deterioration in its performance. This is not the first time this long/short fund has provided underperformance. In 2018 the fund suffered losses and failed to beat its benchmark, the MSCI UK Investable Market index, over all notable time periods.

Temple Bar saw positive albeit poor performance, with a gain of just 2.3%. Temple Bar’s manager, Alistair Mundy, recently took a leave of absence due to health reasons (not related to coronavirus).

Also among the worst ten performers was Invesco Perpetual UK Smaller Companies IT, which returned just over 3%.

In general UK funds and trusts appeared to perform poorly. The UK has suffered from a slower recovery than some other countries due its relative reliance on services compared to manufacturing. The service sector is harder to get going again during a pandemic.