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Best and worst sector performance

By ADRIAN LOWCOCK 06/04/2012

Best and worst sector performance  by Adrian Lowcock

Following the release of the Investment Management Association (IMA) sector data for the first three months of 2012, we review the best-performing sectors and highlight our favourite funds giving exposure to each. We also shine the spotlight on the worst-performing sector over the period.

Best performing sectors, January - March 2012

RankSector name
ReturnBestinvest suggested fund
1 Technology and Telecoms 14.71% Henderson Global Technology
2 European Smaller Companies 14.61% Threadneedle European Smaller Companies
3 UK Smaller Companies 14.10% Old Mutual UK Select Smaller Companies
4 Europe excluding UK 10.41% Schroder European Alpha Plus A
5 Global Emerging Markets 10.40% First State Global Emerging Markets Leaders

Source: IMA unit trust and OEICs sector performance, Lipper

Technology and telecoms ranks No1

IMA data for the first three months of 2012 reveal the Technology and Telecoms sector as the best performer, returning 14.71% over three months.

The Nasdaq also performed well over this period, returning 19.0% and as the economic outlook improves, particularly in the US, spend on IT is likely to rise as companies upgrade IT systems and kick start investment in infrastructure that was put on hold in recent years.

Smaller companies power portfolios

Smaller companies made a big impact in the first three months of 2012, with European Smaller Companies ranking No2 in the performance table after returning 14.6%. In third place was the UK Smaller Companies sector, which delivered returns of 14.1%.

Smaller companies tend to rally as investor confidence grows and outperform when the economy is on the up. They are prone to underperformance when the economic outlook is weak. Good funds managers can really add value in the smaller companies space because information on individual companies is often difficult to access and may not be common knowledge in the markets.

Europe excluding the UK delivers impressive returns

While Europe continues to suffer from a continuous stream of bad news stories and lack of popularity from investors, the European sector performed well in the first three months of 2012, taking the No4 spot (out of 36) and returning 10.4%. The FTSE Europe ex-UK has rebounded strongly, returning 12.0% since the start of the year.

Strong growth in global emerging markets

No5 in the rankings is the Global Emerging Markets sector, which delivered 10.4%, buoyed by a return of risk appetite amongst investors. With emerging markets inherently more risky than their more established counterparts, good active fund managers can add real value for investors.

UK gilts languish at the bottom

The worst performer during the first quarter was the UK Gilt sector, returning -2.2% as investors moved cash from perceived safe havens into riskier assets. This performance highlights the risks that exist when investing in gilts.

The current yield on UK 10 year gilts is approximately 2%, which means investors are effectively losing money in real terms after inflation (3.6% as measured by CPI) has been factored in. We prefer strategic bond funds with mandates that give managers the flexibility to invest in different types of bonds. A good example is the M&G Strategic Bond fund.

Five-year discreet performance

Name2011 to 2012
2010 to 20112009 to 20102008 to 20092007 to 2008
FTSE Europe ex UK TR GBP -11.38 7.48 48.76 -31.06 2.84
IMA Europe Excluding UK
-9.98 7.99 45.32 -29.82 -1.33
IMA European Smaller Companies -8.27 19.41 65.23 -36.51 -9.62
IMA Global Emerging Markets -7.53 9.24 69.14 -27.62 15.93
IMA Technology & Telecoms 7.71 16.62 57.15 -8.70 -8.12
IMA UK Smaller Companies 1.28 28.89 58.19 -36.68 -18.16
NASDAQ Composite TR 12.68 10.77 49.60 -6.11 -6.47

Source: Performance data taken 31 March - 31 March each year, Lipper

Important information

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing. We aim to provide investors with information to help them make their own investment decisions although this should not be construed as advice or an investment recommendation.

Bonds issued by major governments and companies are generally considered more stable that those issued by emerging markets or smaller corporate issuers; in the event of an issuer experiencing financial difficulty, there may be a risk to some or all of the capital invested. This article does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers.

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