Energy Sector Takes a Dive in April, Real Estate Thrives
In April, energy funds took a hit as the global economy slowed down, causing oil prices to plummet. Five energy funds made it to the list of the worst-performing investment funds, with Guinness Global Energy taking the crown by falling 13.5%.
"With a barrel of Brent dropping like a stone, energy shares weren't spared," says Ben Yearsley, director of Fairview Investing.
The situation was tough for US-focused funds too, with North American Smaller Companies and the main North America sector falling 5% and 4% respectively.
However, it was Chinese funds that suffered the most, plummeting an average of 7.5% due to Trump's 145% tariffs. On the flip side, property funds shone, making up four out of the top ten funds.
The fall in global growth expectations caused markets to predict central banks would slash rates quicker than anticipated. The European Central Bank made a cut at their last meeting, while the Bank of England is expected to lower rates next week.
"Europe's rate cut and the strength in German bunds would've been the key factors, with three European property funds in the top ten," adds Yearsley.
Property securities trusts grew an average of 7.7%, followed by UK property trusts at 5%. April was also great for European bond funds, thanks to the sharp fall in German bund yields. Latin American funds reaped benefits due to the US dollar's sharp decline.
"In most cases, with the clear exception of China, losses were largely erased by the month-end," asserts Yearsley.
As for the reasons behind the poor performance of US-focused funds and the strong performance of property funds, market volatility, tariff announcements, and sector rotation played a significant role in the former. The stability, diversification benefits, and strong economic fundamentals made property funds an appealing alternative during market turbulence.
- The drop in Brent, along with market turmoil and sector rotation, largely contributed to the poor performance of US-focused funds.
- In contrast, market volatility and the search for stability led investors to turn toward property funds, causing them to make up four out of the top ten funds in April.
- The three European property funds in the top ten can be attributed to the European Central Bank's rate cut and the strength in German bunds.
- Apart from energy funds, the global markets witnessed a slowdown in April, with the fall in global growth expectations causing central banks to predict quicker rate cuts, resulting in an average growth of 7.7% for property securities trusts.
- The strong performance of property funds can also be attributed to their diversification benefits and strong economic fundamentals.
- While energy stocks and US-focused funds took a hit in April, largely due to the global economy slowdown, properties, European bonds, and Latin American funds reaped benefits, with the US dollar's sharp decline being a key factor for the latter.
