Japan funds top performers in May as growth makes UK comeback

Japan-Target-Arrows-FS-CoverBanner.jpgA number of Japanese funds have helped the sector become the best performing in May while growth funds make a come back among the FTSE sectors, according to FE data.

Four of the top five funds were in the Japan sector, with the Invesco Perpetual Japanese Smaller Companies fund returning 10.9 per cent over the period.

Legg Mason Japan Equity, First State Japan Focus and Fidelity Japan Smaller Companies funds followed with 9.3 per cent, 8.8 per cent and 8.6 per cent returns respectively.

Shore Financial Planning director Ben Yearsley attributes the performance to skilled managers as Japan’s index had a modest rise while the Yen appreciated slightly against the sterling.

Meanwhile, three of the top five fund sectors were occupied by the European sectors; Europe ex UK (+4.5 per cent), European Smaller Companies (+5.4 per cent) and Europe inc UK (+5.04 per cent). The only sector to deliver a negative return in May was North American Smaller Companies.

Yearsley says: “Last month was a mixed bag, yes Japanese funds dominated the top few positions but there was an eclectic mix just below that in the performance tables with Europe, Asia and Technology all featuring strongly.

“Interestingly looking at the FTSE sectors, it was a return to the top for the steadier growth sectors at the expense of the more cyclical sectors”.

Architas investment director Adrian Lowcock argues the expected but not yet delivered tax reforms promised by President Donald Trump might have been one of the reasons that have led investors sell their positions in the US.

He says: “The North American Smaller Companies IA sector was the only sector to fall in value in May, losing 0.6 per cent. The sector has performed well recently on the expectation that President Trump would introduce significant tax cuts which would benefit US smaller companies the most.

“However, Trump has not made any progress on introducing tax cuts and looks increasingly unlikely to deliver on his promises, at least in the short term. As such investors started to take profits on US smaller companies in May.”

In the UK, Yearsley reiterates how the FTSE100 rose in May, given the low sterling and its 3.6 per cent depreciation against the Euro.

He says: “Next week’s election could have far reaching ramifications for the UK. The size, or lack of, a Conservative majority could have a big impact on Brexit negotiations.

“The FTSE has so far remained calm in the face of the disappearing Tory poll lead, it has been Sterling that has reacted more to the polls”.

Lowcock adds:“Japanese stocks had a good month as the outlook for the country improved as consumer spending started to rise and inflation returned to the country.  The Japanese market continues to look cheap compared to other developed markets.”