Who are the winners and losers in March’s sell-off?

Posted by Adrian Lowcock in Latest insights category on 03 Apr 20

Up until the end of February, most investors and western media thought and hoped coronavirus (COVID-19) would remain an issue only for China. This optimism was sadly shattered and markets reacted quickly in anticipation of a global lockdown and growing fear of the impact it would have on the world's economies.

The Winners

Given the extent to which markets have tumbled, it may come as a surprise that some funds and sectors performed well so far during the crisis.  UK government gilts did their job of providing a safe haven and it was the only sector to deliver a small, but positive, return. The IA UK Gilts index returned 1.6% 1 during the period 29th February to 31st March. Some other sectors showed losses that were fairly small compared to the wider market.

Japan held up well for UK investors as the currency rallied against the pound. The Japanese Yen has long been considered a safe haven currency in times of crisis, showing a tendency on occasion to rise when stock markets have fallen. The Morningstar silver-rated Lindsell Train Japanese Equity managed to deliver a 10.5%1 during March. The focus on high-quality cash generative businesses has helped drive performance of this fund, not just last month but over the years.

Absolute Return funds, which generally aim to smooth out the volatility of investing in shares and deliver a consistent return, have also protected investors from the worst of the falls2. The sector had been criticised for failing to protect investors from sell-offs in January 2016 and the end of 2018. The Trojan fund, which features in our Focus 50 list, fell just 1.8%1 in March as manager Sebastian Lyon’s focus on capital preservation, holding quality shares complemented with gold and inflation-linked gilts, delivered for investors.

Perhaps the most surprising sector to have performed well during this crisis is technology. Before the events of March the giant technology stocks were considered expensive, however, technology has provided solutions for people trapped indoors. Demand has rocketed for office equipment as well as services from video conferencing to streaming TV and home delivery, The Morningstar silver-rated, and another Focus 50 fund, Polar Capital Global Technology fell by just 4.65% March1 due to exposure to tech giants in China and the US such as Amazon and Tencent.

The Losers

The UK market has particularly suffered due to its significant exposure to oil stocks, miners and financials. The energy sector was the worst hit as the oil price plunged to a 17 year low because of the expected slowdown in economic activity and the oil price war. Smaller companies in the UK, Europe and the US also performed badly as they tend to be at the forefront of any sell-off. They are the riskier area of the stock markets and are more vulnerable to the massive slowdown in economic activity. They often do not have as much cash on their balance sheets and have fewer options to raise capital if they need it, so are more likely to struggle through the lockdown. However, Richard Bullas manager of the Focus 50 fund Franklin UK Mid Cap believes much of the potential downside of the coronavirus crisis is now priced into small and mid-sized companies and he is starting to see opportunities.

Trying to predict the bottom of the market is impossible, so we suggest you don’t waste your time. The key is to focus on your plan and your aims. The end of the tax year is this Sunday and if you were considering using your ISA or SIPP allowance but are concerned about entering markets right now, you can secure your annual allowance using cash then invest when you feel more comfortable.

1 Source FE Analytics, performance in pounds sterling on a total return basis form 29th February to 31st March

2The IA Targeted Absolute Return sector returned -4.86% over the period 29th February to 31st March on a total return basis, compared to -18.43% for the IA UK All Companies sector.