The top fund sectors of the month

With a week to go, July is on track to be the worst month since the conflict with Iran began.

Following the US-Israeli attacks in March, markets around the world fell and the price of oil spiked. 

Concerns grew that the fighting could spread across the Middle East and beyond. 

Only two Investment Association sectors made gains that month, Short Term Money Market and Standard Money Market.

However, following the ceasefire announced in April, markets rallied, even though the truce remained fragile. 

Of the 35 sectors that we track each week, 31 went up in April, 32 in May and 30 in June.

So far in July, only 11 sectors are showing month-to-date gains.

July's winners

Of the 11 sectors currently making headway, two are the money market sectors and four are thematic sectors: Infrastructure, Financials & Financial Innovation, Listed Property and Direct & Hybrid Property.

However, leading the way is UK Smaller Companies, with UK Equity Income and UK All Companies not far behind. The remaining two sectors currently making progress are Latin America and Global Equity Income.

Looking at the regional equity sectors, the UK is by far the strongest. At the top of the table is UK Smaller Companies, with a month-to-date return of 2.9%. UK Equity Income is up 2.2%, while UK All Companies has gained 1.9%.

At the bottom of the table is Global Emerging Markets, which has fallen by 4.6%.

What helped?

There is rarely one simple explanation for short-term market movements, but several factors may have helped UK funds in July.

The UK market has relatively little exposure to technology, which has struggled in recent weeks, and more exposure to areas such as financials, energy and dividend-paying companies. Some of these have held up better during the renewed uncertainty surrounding the conflict with Iran.

There have also been tentative signs of improvement in the domestic economy. UK private-sector activity returned to growth in July for the first time in three months, while cost pressures eased.

The change of prime minister may have provided further reassurance. This is less because of who took over and more because it brought an end to the uncertainty surrounding his predecessor.

The performance of funds within the three UK equity sectors, UK Smaller Companies, UK Equity Income and UK All Companies, varies widely. So far, the leading fund in July is Schroder UK Mid 250 Z Acc (B76V7S2), up 8.7%, while the worst-performing fund, IFSL Marlborough Multi-Cap Growth P Inc (B8CQP95), has lost 1.7%.

Here are the top ten funds from across the three sectors.

In our demonstration portfolios, we have had relatively little exposure to funds from the UK equity sectors this year.

The Ocean Liner has held the J O Hambro UK Equity Income fund since the middle of January, and it is currently up 9.4%. Last week, the Tugboat invested in the Chelverton UK Equity Income fund.

If the current trend continues, we will consider increasing our exposure.

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