Best and worst fund sectors a year on from the Covid-19 sell-off

The best-performing fund sector is up 50%, while the worst has left investors with losses of 12%. 

This time a year ago marked the early stages of a four-week period in which stock markets recorded steep falls in response to Covid-19 becoming a global pandemic.

In the first quarter of 2020, the FTSE All-Share Index lost 25.1%, while the MSCI Global Index gave up 15.7%. Funds and investment trusts slumped into the red, with some falling much further than their benchmark index.

On a much brighter note, since the end of March onwards markets have been in recovery mode. This serves as a reminder that holding your nerve and thinking long term are two key ingredients of successful investing.

The fund sector winners 

When factoring in both the sell-off and the recovery since the end of March, the majority of fund sectors have produced a return for investors (29 out of 39), figures from FE Analytics reveal.

As the table below shows, four of the top 10 performing fund sectors (from 21 February 2020 to 19 February 2021) have returned more than 30%.

Top of the table is Investment Association’s (IA) China/Greater China sector, in which the average fund is up 49.4%. China was first in, first out of the Covid-19 pandemic, with the country largely keeping new cases under control. As a result, China’s economy recovered much quicker, which has sent share prices higher.

• Top 10 most-popular investment funds: January 2021 
• Funds Fan: Woodford's return and the BMO sustainable fund range
• Read our latest content on funds

In early January, China’s CSI 300 index reached its highest point since 2008. Helping to fuel the rally was a surge of new investor accounts, with retail investors drawn to the market’s strong performance since the end of March 2020. In addition, eye-catching share price rises from Chinese technology companies, such as Tencent (SEHK:700), have piqued investor interest.

Taking the silver medal is IA Technology and Telecommunications, with the average fund up 42.5%. Plenty of column inches have been written on how technology businesses have been the standout winners of the pandemic. During lockdowns, and with millions of people working from home, tech products and services have been embraced, which boosted share prices.

IA Asia Pacific Including Japan takes third place, followed by Asia Pacific Excluding Japan, with respective returns of 36% and 30.7%. As with China, countries across the region had a much tighter handle on Covid-19 versus western economies. This helped to boost investor sentiment, which supported share prices. Also in the top 10 is the IA Emerging Market sector, in which the average fund returned 24.2%.

Elsewhere, three smaller company-focused fund sectors make the top 10: IA North American Smaller Companies (up 27.4%), IA Japanese Smaller Companies (25%) and IA European Smaller Companies (18.2%). The remaining two sectors are IA Japan (20.8%) and IA Global (14.7%).

Top 10 performing sectors since start of Covid-19 sell-off 

Source: FE Analytics. Data from 21 February 2020 to 19 February 2021. 

The fund sector losers

In terms of the losers it is unsurprising to see two property sectors among the 10 worst performers.  As we have recently explained, funds that invest in physical property – offices, warehouses, industrial buildings – have faced the headwind of a 12-month government ban on evicting commercial tenants.

While it gives UK companies some much needed breathing space, it extends the pain for property funds. They have endured 12 months where tenants haven’t been obliged to pay rent, but can’t be replaced. It has cut off their income stream and depressed the value of their buildings.

• Will property funds and trusts bounce back?

IA Property Other, which houses funds that invest in the shares or debt of property companies, was the worst-performing sector overall, with a loss of 11.9%. Funds that buy physical UK property that sit in the IA UK Direct Property Sector, declined by 4.2%.  

Elsewhere, three UK equity sectors were in the bottom 10: IA UK Equity Income (-7.4%), IA UK Equity & Bond Income (-6.1%) and IA UK All Companies (-2.8%).

However, there are signs of light at the end of the tunnel for the out-of-favour UK market following the Brexit deal and the vaccine roll-out. 

• Fund and trust ideas for the 'unloved' UK 

Worst 10 performing sectors since start of Covid-19 sell-off 

Source: FE Analytics. Data from 21 February 2020 to 19 February 2021. 

Top-performing funds 

In terms of individual gongs the three best-performing funds since the start of the market sell-off a year ago (from 21 February 2020 to 19 February 2021) are Premier Miton UK Smaller Companies (up 110.6%), Baillie Gifford American (up 105.6%) and Morgan Stanley US Growth (up 98.9%).

Premier Miton UK Smaller Companies profited from the Covid-19 sell-off as it bet against the FTSE 100 through having a  ‘put option’ in place. A put option allows a fund to profit if the index falls below a certain level. During the sell-off this played out, and the put option was sold. Fund managers Gervais Williams and Martin Turner used the money made to buy companies at depressed prices. A number of the fund's stock picks surged, including Avacta (LSE:AVCT), which has developed a five to 10-minute anterior nasal swab test for Covid-19.

A number of other Baillie Gifford funds feature among the top 20 performers: Baillie Gifford Long Term Global Growth Investment (up 87.5%); Ballie Gifford Pacific (78.9%); Baillie Gifford Global Discovery (75.7%); Baillie Gifford China (74.8%); Baillie Gifford Positive Change (73.7%), and Baillie Gifford Global Stewardship (70.2%).

Strong performance across Baillie Gifford’s fund range has been attracting the attention of investors. According to the Pridham report, Baillie Gifford was the most successful active fund manager in attracting investors to its fund range in 2020.

• Ballie Gifford fund sales surge following strong performance