Fund Watch: Tech rebounds and Train loses passengers

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Welcome to Fund Watch, a monthly look at the latest trends in the world of open-ended funds.

We keep you up to the date with the latest shifts in investor sentiment by highlighting the funds that saw the most inflows and outflows.

We also examine how the latest developments in markets are translating into performance by looking at the best and worst performing strategies over the last three months.

To be included, a fund must be in an Investment Association (IA) sector, but we’re not including money market funds. Click through the slides to see all the latest risers and fallers. 

Biggest monthly inflows Fund size (£m) June inflows (£m) Total return 30/6/18 – 30/6/21 (%)
Allianz Income and Growth 26,263 747 41.1
Pimco GIS Income Instl GBP-hedged 51,290 701 14.7
Scottish Widows Balanced Growth 969 360 11.4
Dodge & Cox Worldwide Global Stock 4,315 350 35.0
Goldman Sachs Emerging Markets Corporate Bond Portfolio GPB-hedged 3,203 267 19.8
Pimco GIS Emerging Markets Bond ESG GBP-hedged 1,723 267  
Nordea 1 – North American Stars Equity 1,341 254 61.9
Lord Abbett Short Duration Income USD 4,284 231 5.5
Royal London GMAP Growth 636 227 13.9
Vanguard LifeStrategy 60% Equity 12,490 224 25.6
Nordea 1 – Global Climate & Environment 7,532 207 67.7
Pictet-Multi Asset Global Opportunities 7,009 199 15.0
GQG Partners Emerging Markets Equity 1,650 191 46.5
BGF Sustainable Energy 4,859 188 83.2
Robeco BP Global Premium Equities 3,194 183 24.5

Source: Morningstar (performance in GBP)

Hooked on clean power

Despite the pullback in frothier areas of ‘clean energy’ since the start of the year, the sector continues to win new investors. The BGF Sustainable Energy fund enjoyed net inflows of £188m during June, swelling the Blackrock fund to over £4.8bn in size, making it one of the sector’s biggest players. That takes flows for the first half of the year close to a whopping £1.7bn, after netting nearly £1.8bn over 2020.

Managed by Citywire + rated Alastair Bishop and A-rated Charles Lilford, like most of the more established funds in the space it had an unspectacular previous decade before rocketing last year. The mandate has returned 43.8% in the year to June and just over 83% over three years.

As money flooded into the likes of wind turbine manufacturers and hydrogen stocks last year, valuations had started to look stretched. The iShares Global Clean Energy ETF, trading under the ticker INRG, has borne the brunt of a pullback, falling 18.3% in the first half. That said, the popular ETF is still up more than 150% on a three-year view.

Bishop and Lilford’s open-ended fund stayed in positive territory in the six months to June, up 6.9%. Bishop told Citywire earlier in the year that, while the ‘obvious beneficiaries’ of government support for green energy had already rerated, they believe ‘the market continues to under-estimate the ultimate pace of the energy transition’ and were finding opportunities in energy efficiency. US-listed, Irish-domiciled Johnson Controls is a top 10 holding, producing safety, heating and cooling equipment for buildings.

The £1.7bn GQG Partners Emerging Markets Equity fund also proved popular, hauling in £191m in June. The firm’s founder Rajiv Jain, who made in his name managing huge emerging markets (EM) funds at Vontobel, is lead manager of the portfolio. The fund has outperformed in the last few years with a 47% return versus 33% for the broader MSCI EM index. In terms of current positioning, Citywire A-rated Jain is underweight China and its internet giants, but overweight Russia and India, especially in areas like banks.

Next: Train loses passengers

Biggest monthly outflows Fune size (£m) June outflows (£m) Total return 30/6/18 – 30/6/21 (%)
Invesco Global Targeted Returns (UK) 2,482 -880 -3.0
Pimco GIS Global Investment Grade Credit GBP-hedged 15,217 -387 14.8
Morgan Stanley INVF US Advantage 11,377 -373 110.8
Neuberger Berman EM Ddebt Blend 844 -326 10.0
Vontobel mtx Sustainable Emerging Markets Leaders 6,867 -324 34.9
Pimco GIS Euro Bond 2,400 -225 5.9
AXA WF Euro Credit Short Duration 2,738 -210 -1.9
Allianz Strategic Bond 3,070 -200 45.4
Robeco Global Consumer Trends 6,940 -199 80.0
LF Lindsell Train UK Equity 6,504 -196 21.2
Schroder ISF EURO Corporate Bond 9,063 -188 10.5
Morgan Stanley INVF US Growth 5,444 -176 156.0
BlackRock Market Advantage 624 -173 11.7
Pictet Clean Energy 3,994 -164 73.8
Schroder Diversified Growth 4,558 -148 18.4

Source: Morningstar (performance in GBP)

Train loses passengers

Nick Train may be ‘back on track’ in performance terms, after the ‘value’ rally ran out of steam in the second quarter, but more investors are calling time on the star manager.

A chunky £196m was pulled from the Lindsell Train UK Equity fund during June. That takes net outflows to about £435m in the first half of 2020 – admittedly, hardly calamitous in the context of the fund’s £6.5bn of assets, but nonetheless notable.

The fund’s sister investment trust, Finsbury Growth & Income (FGT), has also fallen to trade at a discount to the value of its portfolio, reflecting declining investor appetite. Though again, at less than 4% this modest compared to many rivals.  

‘As the year has progressed, many of our long-standing holdings in growth companies have begun to perform better, either because their underlying business growth rate has accelerated or because it transpires they were worse hit by the pandemic than understood and have enjoyed their own “recovery” bounce,’ said Train, in his latest update.

The manager could be tested further in 2021’s second half if inflation proves less than transitory, causing growth stocks to sell-off again. That may provoke a fresh round of investor exits and a more significant derating for the Finsbury trust.

The £3.1bn Allianz Strategic Bond fund also makes the list, with outflows of £200m last month. Mike Riddell’s fund was the standout performer among strategic bond funds during 2020, as he piled into government bonds before the coronavirus crash before quickly pivoting to corporate bonds and profiting from their subsequent quick rebound. Citywire AA-rated Riddell was rewarded with more than £1.5bn of fresh investor cash last year. 

The outflows come as fund’s relative performance has dipped recently with the portfolio heavily invested in government bonds, losing 3.3% in the first half versus a 0.7% average gain in the Investment Association’s Sterling Strategic Bond sector.

In contrast to BGF Sustainable Energy, the £4bn Pictet Clean Energy fund lost more than £160m of capital last month, although is still sitting on net inflows of nearly £1.3bn year to date.

Invesco’s Global Targeted Returns fund, which recently lost a second founding manager, tops the table. It followed up a near £5bn net outflow in the year to May, by bleeding the best part of £900m in June.

Next: Latin America and tech’s fiesta

Biggest three month risers Fund size (£m) Total return 31/3/21 – 30/6/21 Total return 30/6/18 – 30/6/21
JPM Brazil Equity 117 22.2 39.9
BNY Mellon Brazil Equity 49.3 21.0 35.3
Baillie Gifford Health Innovation 115 20.8  
Threadneedle Latin America 341 20.4 22.3
HSBC GIF Brazil Equity 136 20.2 9.3
Baillie Gifford American 7,649 19.9 176.5
T. Rowe Price Global Technology Equity 441 18.4 113.6
Liontrust Global Alpha 207 18.3 72.8
Schroder ISF Latin American 190 18.2 27.9
Janus Henderson Latin American 25.8 17.8 11.0
Liontrust Global Technology 106 17.5 89.6
Invesco Latin American (UK) 97 17.4 9.2
Brown Advisory Latin American 89 17.3 -20.0
Consistent Opportunities Unit Trust 17.7 17.0 45.3
Scottish Widows Latin American 4.1 16.9 28.8

Source: Morningstar (performance in GBP)

Latin America and tech’s fiesta

The list of the top performers over the last three months is dominated by funds focusing on South America and technology.

Both sectors which have enjoyed a bounce, albeit for quite different reasons, and they also performed very differently during the preceding period of the coronavirus crisis.

The Latin American market is dominated by natural resources stocks and financials, which along with energy companies make up well over half the index. In a hot commodities market, where the oil price has recovered strongly and key industry metals like iron and copper have hit multi-year highs (although the latter has pulled back over the last three months), that has kick-started a recovery. Banks have also found themselves on surer ground, helped by the upward pressure on long-dated bond yields and interest rates.

As a kicker, the Brazilian real strengthened more than 10% over the second quarter against the pound and US dollar.

Funds like JPM Brazil Equity have ridden that bounce, soaring 22.2% over the period, with BNY Mellon Brazil Equity equity not far behind. Threadneedle Latin America, with 20.4% from April to June, is just ahead of the pack in the wider region.  

That said, looking beyond the short term bounce, markets on the continent not only remain below their pre-pandemic level but, for international investors, have actually lost money over a decade. The three-year figures mask just how painful it has been, with the JPMorgan fund up 39.9%.  

While the narrative of the ‘value’ rally is still prominent in markets, investors are increasingly noted a slowdown in the second quarter, when ‘growth’ stocks came back to the fore, having dominated so strongly during 2020.

Few things could attest to that more clearly than the presence of Baillie Gifford American – the best performing fund of 2020 – near the top of the table with a 19.9% second quarter gain, as well as a host of technology funds that play in similar territory.

The tech-bellwether Nasdaq Composite index has made decent gains since the start of April as investors were tempted back into these stocks after they sold-off sharply in the first quarter on inflation fears.

Baillie Gifford favourites like e-commerce platform Shopify has hit fresh highs and Amazon topped its autumn 2020 peak. Over three years, the American fund has now returned an incredible 177%.

It is a comparable story for the Edinburgh firm’s Health Innovation fund, which is similarly dialled in to growth stocks and shares holdings like Moderna and Illumina. The £115m sector specialist fund only launched in December, replicating a version of the same strategy which is domiciled outside the UK.

Next: Japan’s Olympics anguish

Biggest three month fallers Fund size (£m) Total return 31/3/21 – 30/6/21 Total return 30/6/18 – 30/6/21
VT Argonaut Absolute Return 31.1 -5.7 18.2
AQR Style Premia UCITS 444 -4.7 -30.2
Aegon Property Income Feeder 150 -4.4 -20.1
Aegon Property Income 156 -4.3 -18.3
VT Clear Peak Capital UK Long/Short Equity 3.1 -4.0  
Threadneedle Japan 865 -3.4 31.2
LF Morant Wright Japan 409 -3.3 -1.8
Janus Henderson Japan Opportunities 29.6 -2.9 25.0
BlackRock Systematic Global Long Short Equity 7.6 -2.8 3.2
Nomura Funds Japan High Conviction 635 -2.8 37.0
RWC Nissay Japan Focus 298 -2.8 26.9
Barings Strategic Bond 33.6 -2.7 10.0
LF Brook Absolute Return 467 -2.5 41.6
Janus Henderson Institutional High Alpha Gilt 102 -2.5 9.8
T. Rowe Price Japanese Equity 348 -2.5 28.5

Source: Morningstar (performance in GBP)

Japan’s Olympics anguish

Excluding funds in various stages of data-distorting wind-up, Japan funds dominate the list of the biggest fallers in the second quarter.

With Japan having never quite succumbed to the pandemic to the extent of other advanced economies, in February the Nikkei 225 index reached its highest point in 30 years.

Since, however, Covid-19 cases have picked up again, the vaccine roll-out has been slow and the economic recovery has stalled. This is all against the backdrop of controversy over whether the Tokyo Olympics should go ahead, even in a truncated form, with the local public roundly opposed.

This has resulted in sluggish stock performance in the land of the rising sun, with Threadneedle Japan down 3.4% through April to June, the value-tilted Morant Wright Japan losing 3.3% and Janus Henderson Japan Opportunities declining 2.9%. The Topix index slipped by 0.9%. 

The various funds in the table have a mixed record against the 15% rise for the index over three years – that itself is about a third of the 46% return of global markets through the MSCI World index. 

While it is no doubt a shame that Japan will miss out on the tourism boost from international spectators at the Olympics and, in general, the chance to promote itself on the world stage has been marred, no one really believes there will be much impact longer-term.

In a recent outlook, Lazard Asset Management said a meaningful reopening in the services sector would add to the recovery in manufacturing and political instability around the position of new prime minister Yoshihide Suga should ease.

‘With the Olympic controversies subsiding by the time September rolls around, the prospect for a more upbeat outlook will rise. By then, vaccination efforts may have progressed to the point that Japan’s economy can advance on a full reopening.’

Elsewhere, Barry Norris’s Argonaut Absolute Return fund has struggled to build on its strong performance last year and was the worst performer in the second quarter, losing 5.7%. That was driven by a particularly poor performance in June, slipping 7.1%, according to the latest factsheet.

Norris said this was almost solely down to the ‘cyclical macro exposure of our US long book’ with housebuilders performing poorly as the market decided ‘that trading conditions could not get any better’. Returns were also hit by short bets against growth stocks.

Norris said he did not believe either company or macro data justified the pivot away from cyclical stocks in the US and expressed doubt about whether the ‘sole cause’ – falling long-term Treasury yields – was sustainable.

‘Therefore in all probability we believe this setback represents a buying opportunity once reflationary positioning has been unwound,’ he said.