Best and worst: funds, investment trusts and sectors so far in 2023

Faith Glasgow outlines the key trends among the fund winners and losers for the first six months of 2023.

What a difference a year makes. Twelve months ago, at the end of June 2022, with the Ukraine war raging abroad and inflation rampaging at home, driven by soaring fuel prices, the six-month open-ended fund sector table was unsurprisingly topped by the Commodity and Natural Resources sector.

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Property, infrastructure and USD government bonds all also featured in the top five, while equity markets were in the doghouse generally. Technology languished fourth from bottom, having lost 24% since the start of the year.

The tables have turned this year, literally. Equities have recovered their mojo to some extent, and tech funds once more lead the field. The tech sector has gained 25% over six months, far ahead of the four regional equity sectors behind it.

At the other end of the sector rankings, only China has had a worse time than the alternative asset sectors that were doing so well this time last year - Commodities, Property (other) and Infrastructure.

What is going on? Well, neither rising prices nor rising interest rates have gone away – particularly in the UK, where the latest painful 0.5% hike from the Monetary Policy Committee in the face of sticky inflation (at 8.7% for the second month running) has hit consumers hard.

In comparison, the US’s consumer inflation sits at a relatively manageable 4%. Indeed, as Ben Yearsley of Shore Financial Planning observes: “The Federal Reserve paused for breath in June [in its rate hiking regime], with inflation seemingly under control.”

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Equities in general have performed reasonably strongly in 2023 despite that continuing stream of largely gloomy macroeconomic news, with Latin America, North America and the European sectors also featuring in the top five fund sectors alongside technology.

The tech revival has been driven by the rise of artificial intelligence (AI plus the Nasdaq index on a roll, up 30% over the half year. Apple Inc (NASDAQ:AAPL) leads the Nasdaq recovery, passing the $3 trillion market capitalisation mark and gaining almost 50% so far in 2023.

In fact, says Yearsley, while tech funds have done well, a Nasdaq tracker would have done even better. “It’s very hard for tech funds to outperform Nasdaq when it goes on a charge, as active open-ended fund have the 10/40 rule (which precludes funds from holding more than 10% of a portfolio in a single asset) to comply with; with Apple and Microsoft Corp (NASDAQ:MSFT) both over 10% of the index, active funds struggle to compete.”

Having said all that, the single best-performing open-ended fund for this half year is the actively managed Liontrust Global Technology, which returned 40%, soundly beating Nasdaq. “NVIDIA Corp (NASDAQ:NVDA) is one of the top holdings, a key beneficiary recently of the AI mania – but Apple doesn’t feature in the fund’s top 10,” Yearsley points out.

Three other tech funds (all with six-month returns of 35% plus) top the individual fund performance tables: T. Rowe Price Global Tech Equity, L&G Global Technology Index, and Nikko AM ARK Disruptive Innovation.    

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Down at the bottom, meanwhile, China has lost 12% over the half year, giving up much of the gains enjoyed in the last quarter of 2022. Economic recovery has proved more faltering than expected back in December when the remaining Covid restrictions were lifted, while geopolitical tensions have risen. Unsurprisingly, three of the worst-performing funds are China-focused, with losses approaching 20%.

At the same time, adds Yearsley, “both the property and the infrastructure sectors have been hit by rising rates and some doom and gloom surrounding the corporate world”.  

Top-performing fund sectors in the first half of 2023

 Source: FE Fundinfo. Data from 31 December 2022 to 30 June 2023. Past performance is not a guide to future performance.

Worst-performing fund sectors in the first half of 2023

Investment trust performance has also been led by the Technology and Technology Innovation sector over the first half of 2023, although it is well behind the turbocharged Nasdaq with an average rise of only 15%. As Yearsley comments, that’s a strange outcome, given that “trusts have more relaxed rules surrounding concentration of holdings”.

The closed-ended tech sector is followed - much more closely in this case – by Latin America and Europe. Japan has also had a good half-year, underpinned by the Japanese Topix index’s meaty 22% uplift.

The UK has largely avoided the limelight for better or worse this half – with the exception of the UK Smaller Companies sector, which features in fifth place among the worst-performing open-ended sectors, having lost around 4%.

Given the MPC’s ongoing rate-hiking programme, and the likely impact on small, growing companies of rates potentially hitting 6% by the end of the year, it’s hardly surprising that investors continue to be wary of investing in the sector.