UK funds dominate in May as emerging markets falter

UK-focused active funds soared to the list of the top-performing funds in May, offering another promising sign for the recovery of the London Stock Exchange.

According to data compiled by FE Analytics, the UK Smaller Companies sector had the best performance of any sector last month with a return of six per cent.

This was followed by European Smaller Companies, which added four per cent, then UK All Companies and UK Equity Income, which both added three per cent.

In comparison, the S&P 500 added nearly four per cent last month. This marked its best May since 2009 and second-best May of the last 20 years, according to Factset data.

“The UK market finally appears to be garnering attention,” said Ben Yearsley, director of Fairview Investing, who argued that the rise in smaller UK companies alongside the strong performance of the FTSE 100 showed “the rally is spreading”.

“Despite this, the UK still looks cheap, offering good yields and defensive characteristics- one of the only things missing is proper growth stocks,” he added.

The only non-UK funds in the top ten best-performing funds were a solar power fund, an Islamic bond fund, and a precious metals fund.

Meanwhile emerging markets were the biggest losers of the month, with the Latin America-focused funds category losing almost five per cent in May.

This was followed by Indian funds, Chinese funds and broader global emerging market funds, all of which lost about one per cent of their value.

However, the worst performers among individual funds were a lot more varied and included multiple US-focused funds.

Fiera Capital Magna MENA, which focuses on the Middle East, was at the bottom of the table, losing 7.3 per cent, while Morgan Stanley’s US Advantage fund came second to last after dropping 7.1 per cent.

In investment trusts, the best performing sector last month was Infrastructure Securities, which gained over 10 per cent as discounts on trusts narrowed.

“The narrowing discounts could have been due to the record buybacks from trusts of £2.2bn in the first four months of 2024,” added Yearsley.