Second quarter in funds: High risk offerings soar

Emerging markets, small caps and high-yield fare best in a strong 2Q for funds

Morningstar Fund Analysts | 08-07-09 | E-mail Article

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Sector fund performance: private equity, financial services funds rally sharply; healthcare struggles
The tenor of the quarter was clearly reflected in the performance of sector funds. The Morningstar Sector Equity - Financial Services category rose 21.7% GBP/32.3% EUR in the period as investors began to search for value in easily the most unloved area of the market. Within that peer group, funds that emphasise banks easily outpaced those with a focus on insurers, reflecting the much lower valuations at the bottom for the former.

The strongest performing Sector Equity category in the period was the Morningstar Sector Equity - Private Equity category, where funds delivered an average gain of 20.4% GBP/40.0% EUR. Securitised real-estate funds also rebounded sharply, with the Morningstar Sector Equity - Real Estate Indirect - Asia and Morningstar Sector Equity Real-Estate Indirect categories rising 22.0% GBP/32.7% EUR and 15.1% GBP/25.2% EUR, respectively. However, we note that the Morningstar Sector - Direct Real Estate category fared much worse, dropping 6.2% GBP/gaining 2.0% EUR.

Energy funds were comparatively weak, registering only a 7.2% GBP/16.6% EUR rise in the quarter despite a strong bounce in oil prices. Within that sector, Morningstar complete holdings data show that funds with significant exposure to mid- and small-caps far outpaced those focussed on large-cap integrateds; this is in line with the historical tendency of smaller-cap energy issues to display a higher level of sensitivity to oil price movements.

Funds focussed on defensive areas of the market fared poorly. The average fund in the Morningstar Sector Equity Healthcare category lost 1.5% GBP/gained 7.1% EUR, and the average utilities fund gained just 3.0% GBP/12.0% EUR. The average Precious Metals offering (most of these funds focus on gold) fell 3.0% GBP/gained 5.6% EUR in the period.

Morningstar Sector Equity Fund Categories
Morningstar Category Total Ret 3 Mo (Qtr-End) GBP Total Ret 3 Mo (Qtr-End) EUR Total Ret 3 Mo (Qtr-End) USD Total Ret 3 Mo (Qtr-End) JPY
Sector Equity Real Estate Indirect - Asia
21.97
32.65
40.13
36.89
Sector Equity Financial Services
21.67
32.33
39.80
36.57
Sector Equity Private Equity
20.44
30.99
38.39
35.18
Sector Equity Real Estate Indirect
15.11
25.19
32.25
29.19
Sector Equity Infrastructure
13.16
23.07
30.01
27.01
Sector Equity Alternative Energy
12.73
22.60
29.52
26.53
Sector Equity Industrial Materials
11.37
21.12
27.96
25.00
Sector Equity Real Estate Indirect - Europe
10.69
20.38
27.18
24.23
Sector Equity Natural Resources
9.87
19.49
26.23
23.31
Sector Equity Ecology
9.39
18.97
25.68
22.77
Sector Equity Technology
7.31
16.70
23.29
20.44
Sector Equity Energy
7.18
16.56
23.14
20.29
Sector Equity Other
7.13
16.51
23.08
20.24
Sector Equity Consumer Goods and Services
6.89
16.25
22.81
19.97
Sector Equity Utilities
2.95
11.96
18.28
15.54
Sector Equity Communications
0.98
9.83
16.03
13.34
Sector Equity Health Care
-1.51
7.11
13.16
10.54
Sector Equity Precious Metals
-2.95
5.55
11.51
8.93
Sector Equity Biotechnology
-4.86
3.47
9.31
6.78
Sector Equity Real Estate Direct
-6.24
1.97
7.72
5.23
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