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Best and Worst Performing Funds in October

It was a a good month for UK funds as the pound rose, while index-linked gilts, US and global funds struggled

Annalisa Esposito 4 November, 2019 | 9:24AM

Trophies

A fraught October saw the £1.2 billion Franklin Biotechnology Discovery top the performance charts, with UK smaller companies funds thriving despite the drama in Westminster. 

As its name suggests, the Franklin fund invests principally in biotech companies and discovery research firms including small to mid-sized ones - its benchmark, the Nasdaq Biotechnology Index, also soared in the month. It was boosted as US drugmaker Amgen announced plans to buy a 20% stake in a Chinese biotech company for $2.7 billion - Amgen makes up almost 8% of the Nasdaq Biotech index.

However, the Franklin fund is rated Neutral by Morningstar analysts because it struggles to stand out from its benchmark – the team picks stocks from a limited universe. Morningstar analyst Connor Young says: “The strategy traffics in highly-volatile biotechnology stocks, so it is prone to steep performance swings.” For example, when biotech stocks rocketed in 2013, the fund climbed an eye-popping 64.6%, but endured a painful 17.7% loss when the sector fell out of favour in 2016.

Top 10 performers in October 

Fund

Return (%)

Franklin Biotechnology Discovery

5.3

H2O Allegro

5.0

Schroder ISF Global Recovery

2.8

Franklin UK Smaller Companies

2.7

TB Amati UK Smaller Companies

2.5

AB Select US Equity

2.2

Artemis UK Special Situations

2.1

MFS Meridian Prudent Wealth

1.8

Investec UK Special Situations

1.7

Robeco BP US Premium Equities

1.6

The Neutral-rated H20 Allegro Fund dropped to second position, returning 5% in October. It returned more than double that in the previous month, at 12.7%. The fund, which was engulfed in controversy earlier in the year, invests in companies that earn overseas so sterling performing strongly against US dollar, Euro and Yen meant losses when converting back to pound.

On the flipside, a good month for the pound meant strong performance for domestic companies – five UK-focused funds made it into the top 10 in October. Especially UK smaller companies funds featured strongly with two funds, the Franklin UK Smaller Companies and TB Amati UK Smaller Companies funds, both Bronze-rated, returning 2.7% and 2.5% respectively.

Morningstar analyst Samuel Meakin believes that the strength of the Franklin UK Smaller Companies fund lies with its co-manager Richard Bullas, who is good at taking advantage of the market inefficiencies that can arise in under-researched smaller company stocks. The fund's top holdings include camera manufacturer Vitec Group (VTC) and British company LondonMetric Property (LMP).

Also two special situations funds appear in the table, the Neutral-rated Artemis UK Special Situations and the Silver-Rated Investec UK Special Situations. However, they returned only 2.1% and 1.7% each. 

Bottom 10 Performers in October

The weakest sector in October was UK Index-Linked Gilts, which fell by 5.5%. In particular, the £1.8 billion Neutral-Rated iShares Index Linked Gilt Index (UK) topped the lst of poor performers, down 7.5% in the month.

The fund tracks the performance of the FTSE Actuaries UK Index Linked Gilts Over 5 Years Index. Morningstar analyst Jose Garcia-Zarate says that while the long duration of the gilts in which it invests provides a helpful tailwind when interest rates are falling, they can hinder performance when rates level out or are set to rise. 

But the fund is not alone in its category. Five of the 10 worst performing funds in the month were index or inflation-linked funds. The Bronze-rated Royal London Index Linked fund was down 6.5%

US and Global funds also featured among the bottom ranks for the month, hurt by a weaker dollar as the Federal Reserve cut interest rates for a third time. These include the Templeton Global Bond and Neutral-rated Fidelity America funds, which are down 5.2% and 5.6% respecitvely.

Meanwhile, Neutral-rated BGF World Energy and the Bronze-rated BlackRock Gold and General funds also suffered in what was a bad month generally for the energy and natural resources. The oil price is down more than 16% year to date. 

Fund

Return (%)

iShares Index Linked Gilt Index

-7.5

BGF World Energy

-7.0

L&G All Stocks Index Linked Gilt Index

-6.6

BlackRock Gold and General

-6.5

Royal London Index Linked

-6.5

Fidelity America

-5.6

Templeton Global Total Return

-5.3

Templeton Global Bond

-5.2

L&G EM Govt Bond US$ Index

-5.0

iShares Overseas Gov Bonds Index

-5.0

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Annalisa Esposito  is a data journalist for Morningstar.co.uk

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