The most significant movers in November were long-dated bonds, which fell in concert around the world following Donald Trump's election as US president. His pledge to inject $1 trillion into the US economy in a massive reflationary stimulus has resulted in the dumping of government bonds, which are hurt by an increase in inflation. Rising interest rates are also detrimental to bonds - a widely predicted outcome of such reflationary policies. So US Treasury yields have increased by almost 50 basis points in absolute terms since the election, and by 14 November $1 trillion had been wiped off the value of the global bond market.
In any case, fixed income has been falling out of favour since the summer due to fears that central banks in the UK, Europe and Japan are running out of the inclination and tools to prop up the market.
In October, gilt yields had already climbed to their highest point since the UK's vote to leave the European Union in June. UK inflation expectations finally rose in October to 1 per cent - inflation and growth are the enemy of long-dated bonds whose value is eroded when inflation rises. Weak sterling is mainly the cause of that rise but there are other factors too, including the recovering oil price and wage inflation.
Stephanie Flanders, chief market strategist for the UK and Europe at JPMorgan Asset Management, says: "Forecasters expect US and UK consumer price inflation to be running significantly above 2 per cent by early 2017 and to keep rising for much of the year".
Ali Maswarah, EMEA director for Morningstar, adds: "Investors flocked to inflation-linked bond funds as government bond yields ticked upward in October; simultaneously, redemptions out of euro government bond and euro diversified bond funds accelerated. This indicates that investors were mindful of bond risks well before the 'Trump Tantrum' kicked in after his election as US president, which came as a surprise for most observers."
Mike Amey, head of sterling portfolio management at Pimco, adds: "Investors immediately responded to the [UK] Autumn Statement by selling gilts, although, interestingly, the British pound was little changed against the US dollar. Our sense is that UK gilts can fall further given that UK growth has already returned to pre-Brexit levels, the supply of UK government bonds is going to be higher than expected and the likelihood of further monetary easing has fallen. However, after a sharp rise in yields, our preference is to reflect caution on gilts relative to other high-quality government bonds rather than by selling outright."
One sector experiencing changed fortunes in November was biotech and healthcare. It has been on a rollercoaster ride over the past year due to Hillary Clinton's determination to crack down on price gouging in the industry, which had eroded the value of biotech stocks. But after she lost the election, between 8 November and 28 November Biotech Growth Trust (BIOG) returned 15.9 per cent and International Biotechnology Trust (IBT) returned 6.8 per cent.
Winners, losers and how to position
The worst-performing Investment Association (IA) fund sectors over one month to 28 November included Global Emerging Market Bonds, which fell 8.48 per cent. The majority of bond fund sectors were also in negative territory, with Global Bonds, UK Index-Linked Gilts and UK Gilts all down by more than 4 per cent.
Among closed-end funds, the worst hit over one month to 28 November included those focused on Latin American and Asian equities, such as Aberdeen Latin American Income (ALAI) and BlackRock Latin American (BRLA). These were hit by a wider emerging markets sell-off in response to Trump's proposals for protectionist policies. His plans to protect American jobs by putting up trade barriers is making investors nervous about Chinese and Mexican stocks in particular.
The best-performing closed-end funds over one month to 28 November were financials funds, which returned almost 10 per cent.
"Financials and real asset-related stocks will benefit from the prospect of a reflationary policy mix of stronger growth, higher inflation and higher interest rates," says Dominic Rossi, global chief investment officer at Fidelity International.
Jason Hollands, managing director at Tilney Bestinvest, says funds such as T Rowe Price US Smaller Companies (LU0133096635) could benefit from a Trump regime, as well as AXA Framlington Health (GB00B6WZJX05) and First State Listed Global Listed Infrastructure (GB00B24HJR07).
The UK Autumn Statement, meanwhile, should benefit infrastructure and technology companies.
"Inflation is set to rise in the UK, so infrastructure investments which offer inflation protection, are government-backed and have predictable cash flows are likely to attract strong demand from private investors," says Adrian Lowcock, investment director at asset manager Architas.
He likes John Laing Infrastructure Fund (JLIF), which has a yield of 5.4 per cent, and JO Hambro UK Equity Income (GB00B8FCHK57), which has exposure to sectors in the UK that could benefit from such a boost.
Mr Lowcock also highlights Woodford Patient Capital Trust (WCPT) due to its exposure to technology companies with high growth potential.
The market in a minute
Style: Value UP, growth DOWN
Assets: Equities UP, bonds DOWN
Sectors: Utilities and consumer goods DOWN, banks and biotechnology UP
Equities: Developed markets UP, emerging markets DOWN
Bonds: Long-dated gilts DOWN, short-dated bonds and high yield UP
