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China funds top in February despite coronavirus

Seven out of the 10 best performing open-ended funds in February invest in China
March 5, 2020

Seven out of the 10 best performing open-ended funds in February were China equities funds, according to data put together by Ben Yearsley, director at Shore Financial Planning – despite the outbreak of the coronavirus. And China/Greater China was the second best performing Investment Association (IA) fund sector, with an average return of 2.84 per cent last month, not far behind the UK Index Linked Gilts sector, which made a return of 3.05 per cent.

The top-performing open-ended fund between 1 and 29 February was Matthews China Small Companies (LU0721876877) with a return of 12.61 per cent. Mr Yearsley said that the fund's holdings in areas such as medical waste recycling and medical diagnostics are benefiting from the outbreak of the virus. 

Barings China Select (IE00B8BY9984) made a return of 6.81 per cent and GAM Multistock China Evolution Equity (LU1574072879) made a return of 6.16 per cent.

“China was the surprise performer last month [after being] one of the worst in January,” said Mr Yearsley. “The actions of the [Chinese] government appear to have slowed the spread of the virus and [with the announcement of] stimulus measures it’s no wonder investors are already looking to the future. It is quite likely that spooked developed markets will follow a similar pattern once the spread of the virus is under control, so a V-shaped market fall and bounce.”

Mr Yearsley believes that markets more generally may continue to fall until the spread of the virus has been brought under control. “But the negative impact on economies should be confined to the first half,” he adds. “The coronavirus is a short-term issue for markets, but shouldn’t have any meaningful long-term impact.”

However, some other analysts are not so confident. “The economic and market outlook is highly uncertain with the coronavirus centre stage, and epidemiologists are far from clear on how serious the virus outbreak could become,” said Rupert Thompson, chief investment officer at wealth manager Kingswood (KWG). “Estimates of the impact on the global economy have been rising sharply and a sizeable hit to activity looks inevitable in the first quarter. Further out, the outlook is much less clear. Rather than a sharp V-shaped recovery in activity, which had very much been the hope until last week, a more muted recovery now looks more likely. The key question is how much of this bad news is now priced in. While equity markets are off 12 per cent or so from their highs [as of 2 March], the typical recession is associated with a considerably larger decline of 20 to 30 per cent, so they are still some distance from discounting one. [We are holding] off from adding to equities – even though our previous game plan had been to use a significant correction to add to risk assets.”

See the Money section for our tips on how to manage your portfolio through volatility on p32-33.

 

Top performing funds in February

FundReturn (%)
Matthews China Small Companies12.61
Threadneedle Property7.1
Barings China Select6.81
NB Uncorrelated Strategies6.5
GAM Multistock China Evolution6.16
GAM Star China Equity6.1
Barings Hong Kong China5.87
Templeton China5.73
Fidelity China Opportunities5.68
Pimco GIS Euro Long Average Duration5.57

Source: Shore Financial Planning/FE Analytics