Interactive Investor

Subdued returns across the board for funds in May

Saltydog analyst runs through how fund sectors performed.

1st June 2021 14:58

Douglas Chadwick from ii contributor

Saltydog analyst runs through how fund sectors performed in May, pointing out that, on the whole, returns were disappointing.

This content is provided by Saltydog Investor. It is a third-party supplier and not part of interactive investor. It is provided for information only and does not constitute a personal recommendation.

After a strong performance in April, the sector returns in May were disappointing.

UK Smaller Companies was once again the best performing sector, but its one-month return dropped from 7.3% in April to 2.4% last month.  

Each week, we look at the performance of a large number of funds. We sort them into their Investment Association (IA) sectors and then combine these into our own Saltydog groups.

We use the groups to help compare sectors that, in the past, have had similar levels of volatility.

The least volatile group, Safe Haven, contains only two sectors: Short Term Money Market and Standard Money Markets. The returns of the funds in these sectors are closely linked to interest rates and so it is no surprise that they have not gone up in recent months.

The slightly more volatile sectors are in our ‘Slow Ahead’ group. In April, all the sectors in this group went up and the best, Mixed Investment 40-85% Shares, made 3.1%.

Last month, however, Mixed Investment 40-85% Shares fell by 0.1%, as did the Mixed Investment 20-60% Shares sector. The best-performing sector in this group was £ High Yield Bonds, but that only went up by 0.3%.

In the ‘Steady as She Goes’ group, the sectors are more volatile, but have been performing well recently. The UK Smaller Companies sector is the best-performing sector from any of the groups so far this year. Between the beginning of January and the end of March, it went up by just over 9%, and since then it has gained a further 10%. Most of the other sectors in this group went up in May, but the returns were lower than we saw in April. This sector also contains the Global Bonds sector that has recently been split into 14 different sectors. We have put them back together in this analysis and mixed them in with the Global Emerging Market Bonds.

The sectors in the ‘Full Steam Ahead’ groups are the most volatile. They can give great returns, but they can also rack up significant losses. For example, the Technology and Telecommunications sector gained 5.6% in April, but last month it fell by 3.7%. The leading sector in these groups is Europe excluding UK, but it only went up by 1.7% last month. Most sectors made losses.

One of the rules for our demonstration portfolios is to only invest in sectors from the more volatile groups if they are giving better returns. That means that at the moment we are not holding any funds from the ‘Full Steam Ahead’ groups.

However, we are holding several funds from the UK Smaller Companies sector which is in our ‘Steady as She Goes’ group. We picked up on this trend in November last year when we invested in the Franklin UK Smaller Companies fund. In January, we added the Premier Miton UK Smaller Companies fund and then the Marlborough Nano Cap Growth and FP Octopus UK Micro Cap Growth funds in February. Last month, we invested in theJupiter UK Smaller Companies Equity fund.

Our overall exposure to funds in the UK Smaller Companies sector has now risen to 26%.    

For more information about Saltydog, or to take the two-month free trial, go to www.saltydoginvestor.com.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.