Geopolitical tensions over North Korea and continued Brexit turmoil might have dominated headlines last month, but global stock markets remained largely unflustered.
Neither did these issues deter ISA investors, who bought funds across a wide variety of sectors. You can see the ten most popular funds in September below.
The UK market was broadly unchanged by the end of the month. Emerging markets made modest gains, while US shares delivered a strong return. Japanese and continental European equity markets did especially well although please remember that past performance is not a guide to the future.
Yet sterling strengthened notably, as the government’s proposal for a two-year Brexit transitional period supported the pound. This weakened the returns from overseas markets for UK-based investors.
Stronger sterling also reduces the earnings of UK companies with significant operations abroad, which meant larger multinational firms underperformed their more domestically focused smaller counterparts.
Where did investors put their money?
In fact, UK investors in small and medium-sized companies received some of the best returns over the month, and this was one of the favoured areas of investment for HL clients.
The list below is provided for your interest, but isn’t a guide as to how you should invest. You should consider your own objectives and attitude to risk before making investments. If you’re unsure of the suitability of an investment for your circumstances, please contact us for advice. Remember investments can fall as well as rise in value, so you could get back less than you invest.
Funds are listed in alphabetical order.
Please note the CF Lindsell Train UK Equity and Lindsell Train Global Equity funds have a holding in Hargreaves Lansdown plc.
Bonds make a return
The Royal London Sterling Extra Yield Bond Fund is new to the list, and the only fund investing purely in bonds to make the top ten.
Expectation of an interest rate rise have gathered momentum in the UK, but while rates still remain at record lows, it’s easy to see the attraction of funds paying a regular and high income. Fund manager Eric Holt and his team focus on undervalued and overlooked areas of the bond markets.
The income on offer can be attractive, although yields are often higher to help offset the additional risk of default. The fund currently yields 6.6%, though this is not a reliable indicator of future income.
Small companies, big potential
The significant growth potential of higher-risk smaller companies has not gone unnoticed by HL clients.
Smaller businesses tend to be dynamic, adaptable, and keen to develop their presence in fast-growing industries. Innovation, technology, and widespread use of the internet has helped these companies level the playing field with larger rivals, creating opportunities to expand and attract new customers. It’s easy to see why their long-term growth prospects are compelling.
There are now three funds focused on smaller companies on the list. Baring Europe Select made an appearance last month – this fund focuses on European small and medium-sized companies and, while many investors have shunned the continent in recent years amid ongoing debt crises, sentiment towards the region has recently enjoyed a dramatic resurgence. Nick Williams, the fund’s manager, has an excellent long-term track record, although this is not a guide to future performance.
Marlborough UK Micro Cap Growth, which focuses on early-stage UK companies, and Standard Life Global Smaller Companies, which aims to identify opportunities across the globe, also feature on the list.
The HL Multi-Manager Special Situations Trust, run by our sister company HL Fund Managers Ltd, doesn’t focus solely on smaller companies, although it has a bias here. The investment team believe managers investing in this area of the market have the greatest stock-picking edge and could help to add significant value over the long term.
Elsewhere, the Jupiter India Fund invests in Indian companies of all sizes, although it has greater exposure to small and medium-sized businesses than many of its peers. Our analysis suggests Avinash Vazirani, the fund’s manager, has generated superior returns by investing in this higher-risk area of the market over the long term.
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