Market carnage: The funds that survived August's global sell-off

 
Annabelle Williams
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Investors have turned to time-honoured safe havens as market turbulence reaches fever pitch
Traditional safe havens such as bond funds and gold were the best places to invest during August’s market carnage.
Fears over slowing global growth and the potential for a wave of deflation to emanate out of China have pushed investors into areas which some commentators had recently been decrying as worthless investments – such as the poor yielding bond sector and lowly-priced gold.
But last month the apparent unravelling of both China’s stock markets and its economy pushed investors into crisis mode, and $3 trillion (£1.96 trillion) was wiped off the value of global shares in the last week alone.
The volatility across equity, commodity and forex markets has been unlike anything for years, and has created uncertainty over whether inflation will return in the West and the timing of interest rate rises – which could now be delayed.
This background has provided a boost for bonds and gold.

GOLD: SAFE HAVEN?

Gold has traditionally rallied during times of strife and reached record highs in 2011 and 2013 when the Greek debt crisis was threatening to tear apart the Eurozone.
The price has since slumped and has stayed low despite recent rumbles of worry in global markets.
Experts have been questioning whether gold will ever be considered a safe haven asset again as the price touched multi-year lows at the start of August.
But it has begun to rally, albeit from low levels, and gold funds have dominated the list of the 10 highest-returning investment funds last month,
“Investor uncertainty and market volatility has been benefitting the yellow metal, although a break above yesterday’s highs and $1,150 is likely needed to see a renewed rush for the safe haven,” says Mike van Dulken of Accendo Markets.

BOND SAFETY

Perhaps surprisingly, bond funds actually made up of half of the top ten highest returning funds last month.
Critics have been declaring the death of bonds for years now, and returns across most sectors have been negative so far this year, but pockets of good performance meant five bond funds rode the market turmoil well.
In the top 10, five are European corporate and high-yield bond funds, a set of data from fund supermarket Hargreaves Lansdown reveals.
The best performing was the Threadneedle European Corporate Bond fund with its 3.57 per cent return for the month.
“The risk-off environment has been a boon for fixed income assets,” says Laith Khalaf of Hargreaves Lansdown.
“People have been calling the end of the bull market in bonds for a long time now… There appears to be a lot of risk there without much return, but people have been saying that for years.”
These funds would have also received a boost from the appreciation of the euro against sterling.
The exchange rate was £1/€1.4 at the start of August, but by the end of the month it was £1/€1.36.
“With the euro’s appreciat­ion against the pound you got a double whammy, propelling these funds to the top of the table,” Khalaf said.

BOND BOUNCE

This may well turn out to be a short-lived blip, however, as average performance for almost all bond sectors has been negative so far this year.
Global, emerging market, corporate bonds and UK government gilts are all in the red, according to closely-watched statistics from the Invest­ment Association, which compiles the average performance of 3,000 funds in every investment sector, from property to global bonds and everything in between.

ALL WEATHER FUNDS

While the rankings were dominated by gold and bond funds, the top performer for August was a fund which has the ability to go both long and short in equity markets.
The City Financial Absolute Equity fund returned an impressive 6.73 per cent during the month as it made money when markets fell and rose.

10 BEST PERFORMING FUNDS:

Name% Return for August
City Financial Absolute Equity6.73
WAY Charteris Gold Portfolio4.83
Smith & Williamson Global Gold4.01
JPM Multi-Asset Macro3.85
Investec Global Gold3.78
Threadneedle Euro Corp. Bond3.57
M&G European High Yield Bond3.39
Aberdeen Euro Corp.Bond3.26
Royal London Euro Corp. Bond3.25
M&G European Corporate Bond3.22

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