Best and worst funds and trusts in first quarter of 2023

Topping the charts is one of last year’s laggards – technology funds. 

As usual, there were many predictions at the start of the year, but one thing that no one saw coming was the collapse of a couple of US banks and European lender Credit Suisse (SIX:CSGN).

The consensus is that those downfalls are not a precursor of the next systemic banking crisis, which perhaps helps explain why a significant market sell-off did not occur.

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Overall, it has been a profitable quarter for fund investors, with 47 of the 58 fund sectors in positive territory over the period, according to data from FE Fundinfo.

Tech leads the way

Topping the charts is one of last year’s laggards – Technology & Technology Innovation, in which the average fund is up 16%. Tech share prices and valuations were marked down in 2022 in response to interest rate rises, but it appears that some of the declines were overdone, which has resulted in a rebound in the first quarter of 2023.

As expected, specialist technology funds have benefited, with the three best active fund performers over the three-month period being T. Rowe Price Global Technology, Liontrust Global Technology and Polar Capital Global Tech, with respective returns of 21.8%, 19.8%, and 19.4%. For passive exposure, topping the tech charts is L&G Global Technology Index, up 19.1%.

The next three best-performing sectors are those that house funds investing in European shares, namely Europe excluding UK, Europe including UK, and European Smaller Companies, with returns of 8%, 7.5%, and 5.5%. Topping the charts were Comgest Growth Europe ex UK (return of 13.2%); BlackRock Continental European (13%); and Allianz Continental European (12.8%).

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Rounding off the top five is the worst-performing fund sector of 2022 – UK Index Linked Gilts, which returned 5.3%. However, having dished out a loss of 25.9%, investors who bought at the start of 2022 in the hope of inflation protection will still be sitting on big losses. The sharp fall in bond prices in response to sharp rises in interest rates have ultimately outweighed their inflation benefits. Such funds offer inflation protection by paying a level of interest linked to price rises in the market where the bonds are issued.

Investment trust trends

For investment trusts, the re-rating for tech did not play out to the same extent. The average return for the Technology and Technology Innovation sector was 6.4%, putting it in sixth place in the overall standings.

However, this sector has only four members, so care needs to be taken when looking at the average return. In the case of the two big tech trusts, the returns were higher, with 16% for Polar Capital Technology (LSE:PCT) and 9.8% for Allianz Technology Trust (LSE:ATT). The duo’s discounts remain wide by historic standards. At the start of April, Allianz Technology and Polar Capital Technology were both trading on discounts of around 14%.  

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Similar to funds, European trusts were among the best performers in the first quarter, with a sector average return of 9.2%. Leading the pack with returns of 12.9%, 10.7%, and 10.3% were BlackRock Greater Europe (LSE:BRGE), JPMorgan European Growth & Income (LSE:JEGI), and Henderson European Focus Trust (LSE:HEFT).

Laggards

At the other end of the table, there is a notable divergence between the worst three fund and investment trust sectors.

For funds, at the bottom of the pile are India/Indian Subcontinent (-5.9%); Healthcare (-3.6%); and UK Smaller Companies (-2.9%).

Whereas for trusts, the three worst performers are Property - UK Residential, Growth Capital, and Financials & Financial Innovation, with respective losses of 18.6%, 14.8% and 11.5%.

The more sizeable losses for those trust sectors show how the investment trust sector can be a double-edged sword. While over the long term the various bells and whistles trusts have over funds tends to result in superior performance, over the short term they can be headwinds when markets are volatile. Such features include the ability to gear (borrow to invest), and trade on share price discounts to the value of the underlying investments – the net asset value (NAV).