Best and worst performing funds, shares and sectors for H1 2022

• DIY investors use passive funds to buy the market dip, and keep the faith with Scottish Mortgage and Fundsmith
• Weak sterling shelters investors from US stock market slump
• Small and mid-caps sell off
• Ocado is the worst performing FTSE 100 stock, BAE is the best performing
• Slow and steady funds have won the performance race so far this year

Laith Khalaf, head of investment analysis, AJ Bell:

“The most notable thing about DIY investors’ behaviour in the last six months is their readiness to buy the market dip using tracker funds. Investors piled into passive funds focusing on the US and Global stockmarkets, areas which have seen some of the sharpest falls in 2022. Eight of the ten most popular funds bought on the AJ Bell Youinvest platform in the first half of the year are passive offerings. Index trackers offer investors simple and broad access to specific markets, which makes them ideal for quickly taking advantage of tumbling share prices. Some investors may well be reserving their sun lounger using passive funds as a placeholder, with the aim of switching into an active fund once they have had a bit of time to do some research.

“Fundsmith Equity and Scottish Mortgage held onto their usual spots as the most popular purchases, demonstrating that DIY investors are keeping the faith with these managers, despite a spell of poor performance. Likewise, Lloyds is still proving popular with investors, even though the share price has fallen by around 15% this year. Having waited for the government to sell its stake, and for interest rates to rise, longer term investors must be wondering what it’s going to take to generate some share price appreciation. For the time being, a forecast dividend yield of over 5% means investors are still being paid to wait.”

Most popular funds, trusts and shares on the AJ Bell Youinvest platform H1 2022:

Source: AJ Bell

H1 2022 Performance Report

“It’s been a punishing first half for investors, with all developed markets finding themselves in negative territory. UK equity investors can console themselves that the FTSE 100 as an index is only just in the red, having been buoyed by its exposure to old economy sectors like oil, tobacco and defence. The small and mid-cap areas of the UK stock market have not fared so well this year, but that does come on the back of a blistering spell of performance in 2021. As investors dial down risk, it’s natural to see them skimp on their exposure to small and midcaps, and this has been exacerbated by inflation taking the shine off the future growth in cash flows that is one of the key attractions of smaller companies.

“Elevated inflation and rising interest rates have also led to a bear market in US stocks, but a weakening of the pound has cushioned the blow considerably for UK investors. The vagaries of the currency markets are such that tailwinds can turn into headwinds at the drop of a hat, but the way things have gone this year investors will cling on to whatever good news comes their way. A similar currency effect can be observed in the global market as measured by the MSCI World Index, and in global funds too, seeing as these are dominated by US exposure.”

Source: Morningstar, total return

FTSE 100 SHARES PERFORMANCE

“Every dog has its day, and after years of unremarkable performance, BAE shares find themselves at the top of the FTSE 100 leaderboard, as the Ukraine crisis has prompted a step change in defence spending pledges across Europe. It’s strange to find defensive stocks in the form of tobacco prospering at the same time as a cyclical sector such as oil and gas, but the current market turmoil clearly has energy price rises near its core, and this has helped buoy the shares of Shell and BP, despite negativity towards the global economy.

“At the less desirable end of the performance table we find a couple of former stock market darlings, Ocado and JD Sports. Ocado is a textbook ‘jam tomorrow’ stock, requiring investment up front to build its large and costly robotic distribution centres in order to generate revenues over the long-term. Such stocks have seen their lofty valuations clipped as inflation, and higher interest rates, have reduced the attraction of distant revenues. Ocado was a clear pandemic winner as lockdowns across the globe highlighted the importance of the online delivery channel, but shares in the company are now trading below their pre-COVID levels. As well as the sell-off in growth stocks, one wonders if lockdowns forced the hand of many traditional retailers to invest in their own online delivery systems, which may lead to a dry spell in terms of fresh deals for Ocado, and therefore little in the way of a catalyst for a revitalisation of the share price.

“JD Sports has suffered from a similar pruning of its valuation, but the business has also been hit by a price fixing scandal, and the departure of its longstanding boss, Peter Cowgill. The road ahead looks troubled too. With household budgets under pressure from rising fuel and energy bills, consumers might well decide their old pair of trainers are spangly enough for the time being.

“Also worthy of note is the plunging share price of the UK’s biggest investment trust, Scottish Mortgage. The trust was a beneficiary of the rocketing share price of disruptive technology companies, and has consequently come down to earth with a bit of a bang as the market has turned against stocks which promise great things, but only in the distant future. Scottish Mortgage employs a high-octane investment strategy, which invites volatility, though the trust is still significantly ahead of where it was pre-pandemic, so longer term investors won’t be too miffed.”

Shares:

Source: Morningstar, total return

FUNDS AND IA SECTOR PERFORMANCE

“The best performing open-ended fund this year has been Guinness Global Energy, which invests in a portfolio of companies involved in the oil and gas industry. Needless to say, soaring oil and gas prices have significantly lifted share prices in this sector. Elsewhere it was very much a case of slow and steady wins the race, with property, infrastructure, and absolute return funds populating the top of the performance tables. You know it’s been a poor season for investments generally when the Short Term Money Market sector gets a look in among the top performers.

“The bottom end of the table is populated by smaller companies funds, global funds and US funds, reflecting the market sell-off in these areas. Baillie Gifford manages four funds of the bottom ten, which is a major reversal of fortunes, as it wasn’t so long ago its funds were dominating the top of the performance table. Baillie Gifford’s growth investing style has fallen out of favour for the time being, after an extremely strong bull run. The primacy of growth or value can be expected to switch hands every now and then, though there can be long periods when one holds on to the torch of market leadership. It’s impossible to predict with any accuracy when such shifts might take place, and how long they will last, so the best strategy for investors is to have a blend of different manager styles within their own portfolio, rather than betting the farm on one particular investment philosophy. “

Open-ended funds:

Source: Morningstar, total return

Investment Association sectors:

Source: Morningstar, total return