Bond Turmoil Shakes Up Fund Tables

The turbulence in the bond and equity markets has upset the usual order among top and bottom performing funds rated by Morningstar, with tech and China out of favour

James Gard 1 March, 2021 | 10:58AM
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A sharp sell-off in equities and bonds towards the end of February has shaken up the usual order of among Morningstar’s highly rated funds. Previous top performers such as China and US tech funds found themselves in the bottom 10 of performers for the month, while US smaller companies, Japan and UK value funds were pushed to the top of the leaderboard. UK Government bond funds were also among the laggards after a surge in yields.

This spike in bond yields suggests that market expectations for inflation, interest rates and economic growth have been revised sharply higher. With bond prices slumping in February, it’s no surprise to see these funds heavily represented in the bottom 10. Some of these funds received strong inflows in 2020 amid the “flight to safety” triggered by the pandemic. Four out of the bottom 10 performers were bond funds and they are focused on UK Government debt: Allianz Gilt Yield lost 6.3%, Vanguard UK Government Bond Index fell 6.2%, while iShares UK Gilts All Stocks Index and iShares Index Linked Gilt Index were down 5.8% each. Many of the bond funds in the bottom 20 are index-linked funds, which are most sensitive to changes in inflation expectations (they are products designed to protect investors from rising interest rates).

Bottom 10 performing funds

Bonds’ 2021 weakness could continue, says Laith Khalaf, financial analyst at AJ Bell, but this should be put in the context of a 10-year plus bull run for bonds: “Bond investors have had a pretty rocky start to 2021, and if the global vaccine roll-out prompts a sharp economic recovery, price falls clocked up this year could be just the beginning.” UK Government bond funds have been the worst hit because they tend to be longer-term than corporate bonds – meaning they are more exposed to the risk of rising interest rates. The benchmark 10-year bond now yields 0.77%, a rise from 0.31% a month ago, which is a substantial move in the bond markets.

Gold, Tech and China Funds Sell Off

Still, bond funds escaped being in worst performers for the month: BGF World Gold took the bottom spot with a loss of 11.7% in February, having notched up a chunky 25% gain in 2020 during the gold bull run. Other 2020 top performers at the bottom of the pile included Silver-rated Baillie Gifford Worldwide Discovery, which was the fourth best performing Morningstar rated fund of 2020 with a gain of 74%. The fund’s top holding is Tesla (TSLA), which has been one of the many tech-focused names that sold off at the end of February after the abrupt change in investor sentiment. Two China funds that outperformed in 2020 also made it in the bottom 10 in February 2021: First State China A Shares and Robeco Chinese Equities, which fell 9.5% and 6.1% respectively.

At the top of the table were funds from a broad range of industries and regions, but with one common theme: they are all exposed to the fortunes of the global economy in some way. Oil stocks and energy funds were hammered in 2020 but they’ve made a remarkable recovery on 2021: BGF World Energy, which lost 30% last year, was the pick of this month’s funds, with a gain of 10.6%. With Japanese stock markets at 30-year highs after a strong start to 2021, it’s no surprise to see a Japan fund in the second spot last month. ManGLG Core Alpha Equity fund, which was downgraded to a Morningstar Analyst Rating of Neutral last year because of a change in the fund’s key personnel, rose 10.5% in February.

Best performing funds

US Small Caps Bounce Back

Two US smaller companies funds by Legg Mason also made double digit gains in February: Bronze-rated Legg Mason Royce US Small Cap Opportunity Fund gained just over 10% and the fund’s biggest weighting is towards US industrial companies, which usually perform well in times of economic recovery. Neutral-rated Legg Mason US Smaller Companies Fund, which has a similar weighting towards cyclical stocks, is the fifth best performer in February, according to Morningstar Direct data.

Given the underperformance of value-focused UK funds in 2020 and investors continued indifference towards them, it’s worth highlighting that Ninety One Special Situations made it into the top five best performing funds in February – the fund lost nearly 15% in 2020, underperforming the FTSE AllShare and the Morningstar Flex-Cap Category, and was downgraded by Morningstar Analysts to Neutral in the middle of 2020. The fund’s top holdings include two builders’ merchants, Travis Perkins (TPK) and Grafton Group (GFTU), whose share prices have gained strongly in recent months after being crushed in the March sell-off.



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.

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James Gard

James Gard  is senior editor for


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