Best and worst performing funds in the first half of 2020

The top-performing fund has posted gains of 64%, while at the other end of the table the worst performer is down 42%.

The vast majority of the thousands of funds available to retail investors posted a loss in the first six months of 2020, but funds heavily focused on technology stocks managed to buck the trend.

Leading the pack at the halfway point in 2020 is Morgan Stanley US Growth (up 64.2%), with its 45% exposure to technology companies paying off. Its top holdings include Shopify, Amazon, Slack Technologies, Uber and Zoom Video Communications. In addition the fund has 21% of its assets in healthcare, which also contributed to its strong performance.

Both technology and healthcare have been standout winners following the systemic changes that have seen millions of people stay home in response to coronavirus. The consensus regarding both sectors, particularly technology, is that lockdown has accelerated existing trends that will continue to play out as lockdown restrictions ease – such as an increase in e-commerce, remote working and online medical consultations. 

Having a big slice of exposure to technology benefited other funds in the top 10: Baillie Gifford American (up 54%), Baillie Gifford Long Term Global Growth (47%), Morgan Stanley US Advantage (41.6%), New Capital US Future Leaders (37.3%) and Baillie Gifford Global Discovery (35.9%).

Matthews China Small Companies (63.2%) also benefited from its exposure to technology and healthcare, as well as to China’s market, which posted one of the strongest rebounds following the sell-off.

Top 10 performing funds 

Source: FE Analytics, performance from 31 December 2019 to 30 June 2020 in sterling. Funds included are those retail investors can buy.

Elsewhere, gold funds have shone, with MFM Junior Gold (36.4%) and ES Gold and Precious Metals (34.7%) both in the top 10 performers. The previous metal is viewed as the ultimate safe-haven asset; investors flocked to gold during the sell-off, and its price soared.

In recent months, as markets have been in recovery mode, gold has remained in high demand among investors, primarily because investors are concerned inflation is set to return following promises from governments and central banks to “do whatever it takes” to get economies motoring following lockdown. In theory, this scenario should bode well for gold, which has historically provided a hedge against inflation. 

Regarding the fund winners in the first half of 2020, Adrian Lowcock, head of personal investing at Willis Owen, notes: “The first six months of 2020 have been amongst the most volatile markets every recorded as large parts of the world entered into lockdown. The impact on stock markets of the spread of coronavirus was a rapid and severe sell-off as investors weighed up the economic cost of shops, bars and restaurants being closed as well as most travel and tourism.

“However, due to equally quick government and central bank actions, markets staged a strong rebound, led by technology stocks. Technology companies have been huge beneficiaries of the lockdown as companies and people turn to digital services to carry on working and living their lives.”

On a sector level technology funds came out on top, followed by UK index linked gilt funds and in third place funds investing in China.

10 best-performing sectors

Source: FE Analytics, performance from 31st December 2019 to 30th June 2020 in pounds sterling on a total return basis.

At the other end of the table the biggest laggards in the first half of 2020 are dominated by UK funds, accounting for five of the bottom 10 fund performers: ASI UK Recovery Equity   (-42.5%), LF Equity Income, formerly named LF Woodford Equity Income (-42.4%), Aberforth UK Small Companies (-34.2%), ASI UK Constrained Equity (-33.4%) and GVQ UK Focus (-32.2%).

The UK stock market was among the hardest hit globally in the five week sell-off that took place in February and March. While the UK market and UK funds generally have been clawing back losses over the past couple of months, income funds and those that focus on buying ‘value’ stocks have remained among the weakest performers.

10 worst performing funds 

Source: FE Analytics, performance from 31 December 2019 to 30 June 2020 in sterling. Funds included are those retail investors can buy.

In addition, energy funds feature in the bottom 10 following the spectacular oil price decline in March. This was due to a mix of fears of a global slowdown owing to coronavirus and the resulting price war between Saudi Arabia and Russia, two of the world’s biggest producers. Given most UK equity income funds hold Royal Dutch Shell and BP in their top 10 holdings, this also contributed to the underperformance of UK equity income funds in the first half of 2020.  

Overall, as the table below shows, the UK equity income sector was the worst-performing sector in the first half of 2020.

10 worst performing sectors 

Source: FE Analytics, performance from 31st December 2019 to 30th June 2020 in pounds sterling on a total return basis.

Looking ahead to the second half of the year, Darius McDermott, managing director of Chelsea Financial Services, notes that “much will depend on how deep and how long the global recession becomes. While there has been – and there will undoubtedly continue to be – central bank and government support, there is bound to be volatility in stock markets.”

He adds: “At times when the market rallies, equities will make some decent returns, but these good days will no doubt be sandwiched between days when markets fall too, so more defensive assets – such as gold and government bonds – will be important to cushion those falls. As ever, having a diversified portfolio is important.”