US growth and technology funds were the best performers in June, while gold funds trailed the group, according to the latest data from Morningstar.
So far this year, growth stocks have been in value’s shadow but June saw a remarkable comeback for 2020’s tech winners. Rallying US stocks have pushed benchmarks to near record highs as investors have sought out riskier assets, resulting in a complete turnaround from worst performing funds in May to the top of the table in June.
The Silver-rated Morgan Stanley US Growth was the best performing Morningstar-rated fund, gaining 16.43% over the month. This is in stark contrast to its May figures – the fund was among the bottom 10 performers with a -5.85% return. Moreover, the gains were also enough to turn its quarterly and half-year returns around, now standing at 16.52% and 11.40% respectively.
Three more funds join the top fund in flipping from zero to hero over the past month: Morgan Stanley US Advantage (from -5.41% to 12.42%), PGIM Jennison US Growth (from 5.69% to 11.4%) and Baillie Gifford Global Discovery (from -8.05% to 11.5%).
The catalyst was the Federal Reserve meeting in the middle of the month, where the central bank signalled that rising inflation means rate rises could come sooner than the market had anticipated. This drove investors back towards riskier assets and provided a boost for the dollar.
While US growth funds dominated in June, technology was the highest-performing category, and as a result, technology-specific funds accounted for over half of the top 10 funds. This includes Baillie Gifford Global Discovery, one of the very best performers in 2020. T. Rowe Price Global Technology Equity had the highest return among the tech-only funds and it has returned 13.2% in June, 16.16% since April, and 12.6% so far this year.
Comparing the June and May data shows the volatile nature of investing during the Covid-19 era. BlackRock Gold and General fell by 11.80% and BGF World Gold by 11.6% in June, despite being the top two and three performers in May
The funds’ returns are in line with the tumbling gold price. After significant growth last year, where investors rushed to protect their portfolios against a recession, markets are now expecting a reopening of the economy. Furthermore, the Fed meeting which boosted the dollar and the US market overall, has come at the expense of commodities. (A higher dollar makes commodities more expensive to global investors and tends to put pressure on the price of gold and oil).
Two China-focused funds also made the bottom 10, including the Gold-rated UBS China Opps, which saw a return of -3.56% (-4.98% so far this year) and Bronze-rated FFSA China A Shares.
Steve Land, manager of Franklin Gold & Precious Metals Fund says that despite progress in US-China relations, the global economy is still under extreme stress, and the path to a full global recovery is unlikely to be smooth.
“Although the pullback in gold from the 2020 highs is noteworthy, we believe the opportunities in gold- and precious-metals-focused equities are even more compelling, especially if gold prices can hold current levels or move even higher,” he says.
Fidelity Special Situations has also had a negative June (-2.07%), but, the fund has still managed to return 16.84% so far this year, as special situation funds have managed to become one of the best performing categories so far this year.
