Will top 20 fund winners of last six months keep up their fine form?

Revealed: the biggest fund winners since the Covid-19 sell-off. Hannah Smith considers whether strong performance is likely to be maintained in the months ahead.

Gold, US equity and, perhaps surprisingly, smaller companies funds have been among the best performers as global markets recovered from March’s sharp correction.

Data from FE Analytics looking at the top 20 fund performers from 23 March to 7 October shows some clear investment themes.

Topping the table was MGM Junior Gold, with an impressive 154% return. ES Gold and Precious Metals, Merian Gold and Silver, DMS Charteris Gold & Precious Metals, Ninety One Global Gold, and BlackRock Gold & General also featured in the list. The gold spot price has risen 24% year-to-date, peaking above $2,000 an ounce in early August to set a new record.

Another obvious theme to pull out from the winners’ list is the strength of US growth stocks such as tech and healthcare, which have had a fantastic run. Taking second and third place are Baillie Gifford American and Morgan Stanley US Growth, each returning more than 100% from March to October. In fact, Baillie Gifford boasts five funds among the 20 best performers, thanks to the fund house’s strong focus on growth stocks.

Top 20 funds since market recovery (23 Mar 2020 to 07 Oct 2020) 

Source: FE Analytics

Small-cap surprise

US and UK smaller companies funds from Miton and a US micro-cap fund from Allianz also make the list, which is perhaps unexpected given the pressures facing small businesses right now. Mark Harris, lead fund manager at Garraway Capital Management, running its multi-asset funds, says this is an interesting development and he will be looking more closely at small-cap funds.

Allianz US Micro Cap Equity is heavy in tech and biotech and it has benefited from that even when small-cap more broadly has lagged, says Harris, while good stock selection and the re-rating of several holdings has helped performance in the other two funds. “I am very interested in those US small caps because, by any reckoning, they should have lagged this year, and the fact they’ve delivered such big numbers, I wonder if that’s the start of more, if they can keep going. I think it is worthy of more investigation.”

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All that glistens

As for the strength of the yellow metal, James Menzies, investment director at Greystone Wealth Management, explains that Covid-19 panic helped drive the gold price rise. 

“Global equity and bond markets have performed well since the sell-off during the first quarter of 2020, however, gold has also rallied strongly due to investor risk aversion connected with the coronavirus pandemic,” he says. He gets exposure to gold for his clients using exchanged-traded funds (ETFs) rather than buying gold mining shares through active funds.

Harris explains that the backdrop to gold’s outperformance is low bond yields, record fiscal and monetary stimulus from central banks, global interest rates at zero and a huge amount of liquidity in the market. With policymakers printing money in this way, inflation could be a worry over the longer term, and the dollar could come under pressure, all of which would be very positive for gold.

He adds: “All of those add up to, if you’re a gold bull, thinking that gold would go a lot higher.

“The key question is, can this be sustained? Whoever comes into power in the US, it is likely that there will be another big fiscal stimulus package that could amount to $2 trillion or more. With a central bank committed to bond purchases, interest rates staying low for many years, and earnings for gold miners looking very good, I think you could see the gold price at much higher levels.”

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Growth priced in?

Things might not be quite as plain sailing for the US growth story, however. Harris notes that Covid-19 has accelerated some trends that were already developing, such as healthcare and medical innovation, cloud data storage, e-commerce. But do stocks tapping into these themes have further to run with share prices having climbed so far already?

“You’ve got to wonder, given that share price appreciation, is a lot of the good news priced in? I would argue that in some cases, especially the FAANG and FANMAG stocks, a fair bit is priced in. That’s not to say they will be disastrous, they could still reward, but I think that rate of change has to slow quite a lot,” he says.

Harris has been focusing instead on the “picks and shovels that enable that structural shift”, including payment service providers such as Visa (NYSE:V) and Mastercard (NYSE:MA), which should benefit from the growth of online business.

Menzies thinks that many of the changes Covid-19 has brought about, such as the shift to remote working, will continue for some time, and those funds with a growth and tech bias could continue to perform. He holds three funds on the winners’ list within his multi-manager portfolios: Baillie Gifford American, Baillie Gifford Long Term Global Growth, and Morgan Stanley US Advantage.

He notes that they have in common “the ability to find companies with sustainable competitive advantages, which enable them to grow earnings faster than peers”. “These types of high-quality companies are more flexible and better placed to adapt to these changes.” However, he urges investors not to forget about other markets, too, especially when it comes to tech. Menzies notes that this year China overtook the US in intellectual property patents, and has its own tech giants in Alibaba (NYSE:BABA) and Tencent (SEHK:700), showing that the US is not the only store of innovation and growth for investors to mine.