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Best and Worst Performing Funds in May

Indian markets gain strongly in May in anticipation of a rebound from the current coronavirus spike, but US tech funds struggle again

James Gard 1 June, 2021 | 11:54AM
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India and gold funds dominated the top 10 best performers for May, while US growth funds continued to struggle, according to the latest Morningstar data.

The surge in coronavirus cases in India barely affected the performance of domestic stock markets last month, which were among the best-performing global benchmarks in May. This turnaround is even more marked because Indian funds were among the worst performers in April.

Bronze-rated Jupiter India, which managed to eke out a 1% gain in 2020, was the best performing Morningstar rated fund in May with a gain of 9%, helping to boost the year-to-date performance figures of 13%. This made the Jupiter fund one of six India funds in this month’s top 10, two of which beat the 5.8% gain by the Morningstar India index in May.  The other fund to beat the index was Franklin India, which also has a Morningstar Analyst Rating of Bronze. Gold-rated FSSA India Subcontinent wasn’t too far behind with a gain of 5.7%.

Best Performing Funds in May

Top 10 best performing funds

What explains the disconnect between the health crisis in India and the stock market outperformance? Even taking into account the devastating second wave in India, the country could still manage the strongest growth in the world of 10% this year, according to economists. There are tentative signs that the coronavirus spike there may have peaked, and investors are hoping that China’s example of strong recovery last year could provide a template for an Indian rebound. Still, comparing the April and May data does show the volatile nature of investing in emerging markets: some of last month’s top performers, including the Franklin and FSSA funds, were among the worst performers in April.

Taking into account the top 20 best performers last month, emerging market and frontier funds in general were among the leaders after a lacklustre 2020. Neutral-rated T. Rowe Price Frontier Markets fund was the best performing general fund with a gain of nearly 5% for May and 18% for the year to date, while Templeton Emerging Markets Smaller Companies is up 4% in the month and more than 15% in 2021 so far.

Two BlackRock gold funds that rose 25% in 2021 took the number two and three slots last month, BGF World Gold and BlackRock Gold and General, benefiting from the inflation-inspired wobble in world equities early in May. A number of UK funds that have done well in 2021 also made it into the top 20 best performers in May, among them Gold-rated Fidelity Special Situations and Silver-rated Schroder Recovery and Artemis UK Smaller Companies. We’ve recently featured these funds in articles about UK funds for recovery and the rotation back into value.

Worst Performing Funds in May

Bottom 10 performing funds

At the bottom end of the table, the size of the losses mirrored those of the biggest gainers, with no fund losing more than 10% in May. Bronze-rated Alger Small Cap Focus came close, with a fall of 9.8%, making it the worst performing Morningstar rated fund last month. But this fall is in the context of a 44% gain last year and 20% gains in the previous two calendar years.

It’s a similar story for two tech-focused funds from Baillie Gifford that strongly outperformed in 2020, Baillie Gifford Worldwide Discovery and Baillie Gifford Global Discovery. These two tech-heavy funds have Silver Ratings, and gained around 75% last year, making them the third and fourth best performers in 2020, but fell around 7% in May. Another stellar 2020 performer that was on the back foot last month was Silver-rated Morgan Stanley US Growth, which fell 6% after more than doubling last year, making it the best-performing fund under Morningstar coverage. The highest rated fund among the laggards was another US growth name. PGIM Jennison US Growth, which has a Morningstar Analyst Rating of Gold, shed 5.7% in May and is 3.5% lower in the year to date. But this follows a rise of 50% in 2020 and 28% in 2019.

Can value funds maintain the upper hand against growth for the remainder of this year? There are a number of reasons why they can, says Jonathan White, head of investment strategy at Rosenberg Equities, which is owned by AXA Investment Managers. The macro picture is supportive of value stocks he says, especially with investors increasingly worried by inflation, and valuations remain compelling. “If we just use history as a guide then rotations into value following a significant period of weakness can be protracted,” he adds. But he thinks that some of the trends that supported growth stocks in 2020, such as technological disruption, are likely to reassert themselves from 2022 and beyond.

 

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  is content editor for Morningstar.co.uk