UK small companies funds surge as government bonds sink

Funds invested in tech stocks and UK small companies jumped significantly last month, while government bond-focused funds failed to make returns amid tremors in the Treasury market.

Tech funds returned nine per cent during May, while UK smaller companies funds rose 7.3 per cent, making them the two best performing sectors, according to data from FE fundinfo.

Since the start of the year, the FTSE 100 has grown more than six per cent, compared to less than one per cent for the FTSE Smallcap index. But the winds seem to have shifted for the success of smaller companies in the UK, as well as in Europe and North America.

“The Mansion House Accord possibly helped UK smaller companies with rumours abounding about a large allocation to UK small caps in the near future,” said Ben Yearsley, director of Fairview Investing.

Meanwhile, investment funds focused on tech stocks soared after the S&P 500 posted its biggest gain in 18 months, with a 6.3 per cent shift upwards.

The best performing fund of the month was the Alger Focus Equity fund, which invests in the North American sector and grew 14.9 per cent in May.

In contrast, four of the five worst performing fund sectors focused on government bonds, with only health funds (-3.8 per cent) performing worse.

US Treasuries continued to suffer as fears around significant deficits in the country and financial instability from tariffs plagued the bond market.

“That followed a credit rating downgrade from Moody’s, and there was also plenty of focus on the tax bill currently moving through Congress,” said Henry Allen, macro strategist at Deutsche Bank.

UK index linked gilt funds lost 2.8 per cent during the month, while US government bond funds lost 1.8 per cent.

However, the worst performing fund of the month was actually JP Morgan’s Emerging Europe Equity fund, which lost 6.5 per cent during May.