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UK funds – July performance update

The stock markets have had a turbulent six weeks since the EU referendum on 23 June. In this article Alena Kosava, Director of Research, gives an update on the performance of UK funds and equity markets since the decision was made to leave the EU.

The rise of the FTSE 250 since Brexit

The FTSE 250 index of mid-cap businesses rose 6.4% in July, briefly reaching its pre-Brexit level at one point during the month. This comes after it suffered steep losses during the month of June, where the domestically-reliant index underperformed the larger and more global companies comprising the FTSE 100 index by around 10%.

How did the equity markets perform in July?

All major UK markets ended July in positive territory. The Numis Smaller Companies index lead the way with a 7.3% increase, whereas the FTSE 100 index was steadier with a 3.4% gain. The large-cap sector of the largest publicly traded companies remains the strongest performer in the year to date (up 10.3%), with mid-cap and small-cap businesses returning 0.8% and 1.3% respectively over the same period.

Which sectors performed well?

The technology sector was the best performer during the month. This was mainly driven by the soaring price of ARM Holdings (a designer of computer chips) after a takeover bid by SoftBank, the Japanese telecom, internet and e-commerce business. Basic materials and healthcare both outperformed other sectors, returning 10% and 6.5% respectively.

After a remarkable 22.7% increase in June, the oil & gas sector lost 3.9% in July as the oil price fell below US$40 a barrel for the first time since April. Weak performance numbers were posted by several defensive sectors too, with utilities (+0.6%), telecommunications (+0.8%) and consumer goods (+1.3%) all lagging behind the wider market.

It is worth noting that financials and consumer services – the two sectors that suffered worst during the post-Brexit fallout due to their domestic focus – bounced back in July to return 6.1% and 4.8% respectively.

The performance of funds that we rate highly

Driven by market rotation changes in July, funds with a focus on small and mid-cap companies and those with a bias to the domestic UK economy have done better. Despite lagging the market in June, several funds that our research team rates highly have bounced back over July.

Axa Framlington UK Mid Cap and Franklin UK Mid Cap returned 8% and 7.8%, beating the FTSE mid-cap index by 1.6% and 1.4% respectively. The rated funds that focus on large-cap businesses were steadier but still delivered mid single-digit growth over the month.

JO Hambro UK Opportunities returned 3.8% during the month, coming in just below the FTSE All Share index. This was down to the fund being overweight in utilities, underweight in healthcare and lacking investment in the technology sector. However, the fund remains one of the best performers amongst our rated funds in the year to date, having returned 10.4% to the end of July.