Investors shrug off lockdown to send global markets soaring in April

Posted by Adrian Lowcock in Latest insights category on 05 May 20

Following the rapid decline in markets in March, stock markets rallied strongly in April.

Smaller companies in the US and UK led the rebound, having led markets lower during the March crash. The volatility in smaller companies reflects the risk of the asset class. Smaller businesses are more vulnerable to an economic slowdown as they have fewer options available to protect their businesses.

Although the US has so far suffered the most from the Coronavirus and has rocketing unemployment, investors reacted positively to a series of stimulus packages coming from the US government. This helped the S&P 500 index in the US return 12.7% in April as the country’s leading positions in technology helped its markets to race higher.

Technology firms have been huge beneficiaries of the lockdown as companies and people turn to digital services to carry on working from home as well as for entertainment and shopping.

Investors are still cautious

The best performing funds tell a slightly different story. Gold has been the big winner as central banks slashed interest rates and looked to expand balance sheets to support economies, companies and individuals. With the price up over 5%1 in April alone precious metals funds have benefited directly.

The performance of gold funds suggests investors are treating the rebound with some caution and are investing in the precious metal to provide what may be perceived as an element of insurance for their portfolios. The Blackrock Gold & General fund, which is bronze rated by our research partner Morningstar, delivered 40.14%2 return in April.  It invests mainly in gold and other precious metals by buying shares in gold mining companies.

Given the collapse in the oil price in April, particularly in US futures, it is surprising that energy funds showed a positive return, let alone appear in the top performers for April. Part of the reason for this is energy funds were amongst the worst performing in March, as the sector was reeling from the oversupply caused by the Saudi/Russian oil price war and slump in demand due to coronavirus crisis. April saw energy companies rebound from March lows on hopes both headwinds would be temporary. Investors appear to have dismissed the oil price collapse in April as a short-term, technically driven issue.

Which assets didn’t perform in April

The laggard in April was the UK Direct Property sector, which remained in negative territory. Many funds in the sector have struggled to accurately value the properties in their portfolios, which led to them being suspended. This means it is going to be some time before we find out the full extent to which the crisis has impacted property fund values.

Bonds lagged equity markets in the rebound. Although they could not keep up with the stock market rally, it is interesting that bonds continued to deliver positive returns. In particular UK Gilts, which lived up to their safe haven reputation in March, still managed to deliver another small positive return of 2.57%in April as investors remained cautious of the impact lockdown will have on the global economy.

Where to next?

Economic and company data will only tell you what has happened, it does not forecast the future. Many companies are refusing to make forecasts for the rest of the year until they have a better visibility on what that might look like. As such, it would be prudent to expect more volatility in markets this year as sentiment ebbs and flows. In these situations, the best course of action is to remain diversified and invest in the best fund managers you can find. Check out our Focus 50 list of funds for ideas.

1Source: FE analytics 31st March to 30th April, LBMA Gold Bullion, total return in pounds sterling
2Source: FE analytics 31st March to 30th April 2020, total return in pounds sterling.