Q3 2019
In the third quarter of the year, global markets faced volatility as various economic and political events unfolded. Brexit was reaching its final stages, with UK Prime Minister Boris Johnson working on a new Brexit deal, while US President Donald Trump continued to threaten China with additional tariffs. Concerns over a slowing global economy, central bank policies, and the inversion of the US yield curve added to investor anxiety.
Property investments continued to perform well, driven by low interest rates and rising prices, particularly in North America. The sector's defensive characteristics, such as sustainable dividends and strong cashflows, remained appealing to investors.
The fourth quarter began with Trump's aggressive rhetoric, but hopes emerged for a "phase one" trade deal with China. Additionally, the UK prepared for a December general election, seen as a significant vote on Brexit. The prospect of a no-deal Brexit diminished, providing some certainty and potentially benefiting the outlook for UK domestic stocks.
In the third quarter, there was a notable divide between developed and emerging markets. Japanese, US, European, and UK equities delivered positive returns in sterling terms. However, emerging markets like India and Brazil faced challenges due to a strong dollar and the US-China trade dispute, struggling to recover losses. Japan stood out as a winner, responding well to easing trade tensions and attracting investors with low stock prices.
Uncertainties in early August led to declines in the FTSE 100 and S&P 500, but a recovery driven by trade talks in September ensured a positive end to the quarter for developed markets. Defensive sectors, including utilities and real estate, outperformed economically sensitive sectors. Energy and basic materials faced declines amid concerns about global economic health.
Bond markets rallied as central banks globally lowered interest rates in response to escalating trade tensions. Oil prices experienced a spike following an attack on Saudi Arabian oil infrastructure but remained down due to ongoing demand concerns. Gold rallied as investors sought safe haven assets.
The top-performing ii Super 60 fund in the third quarter was iShares Physical Gold ETC GBP, returning 8.8% as investors sought safe havens. TR Property Ord delivered returns of 7.2% due to strong performance in real estate, known for its defensive characteristics and higher yields. Vanguard UK Govt Bond Index Fund returned 7%, reflecting a decline in gilt yields driven by increased risk aversion.
On the other hand, BlackRock Frontiers Ord was the lowest-performing fund, facing the impact of escalating US-China trade tensions and global growth concerns. Man GLG Continental European Growth fund and TR European Growth Trust also experienced losses due to political turmoil in Europe affecting investor sentiment.
All the Super 60 funds have generated positive absolute returns over the past five years. Top performers include Legg Mason IF Japan Equity Fund, Baillie Gifford Shin Nippon Ord, and Fundsmith Equity, with annualized returns exceeding 20%.
