Investors returning from their summer holidays were greeted with a volatile market over September, as a Federal Reserve rate rise and the US-Iran war led to wide differences in sector returns.
Tech funds were the standout in the Investment Association universe, with the average peer in the IA Technology & Technology Innovation sector up 4.6%.
Several events throughout the month benefited tech stocks. Meta's launch of the Muse AI agent was positively received, while AMD passed a market capitalisation of $1trn.
Views on whether the US and Iran war would come to a resolution also varied wildly over the course of the month. Any signs that the war could be coming to an end should ease inflationary pressures and allow the Federal Reserve to be more cautious on raising interest rates, which are historically negative for stocks that are priced on future earnings – as tech companies are.
There were small gains made elsewhere, with the IA Japan, IA Latin America, IA Healthcare and Biotechnology, and IA Asia Pacific Including Japan sectors all up between 1.1% and 2.6%.
Source: FE Analytics
At the other end of the spectrum, the IA India/Indian Subcontinent peer group struggled due to rising oil prices. India is a net importer of oil and foreign investors were quick to pull cash out of the market.
Perhaps the most significant asset class to stumble last month for investors was commodity funds, with the IA Commodity/Natural Resources sector down 3.8%, the third-worst in the table above.
A combination of factors hit commodity funds, but it was metals and miners that were responsible for the weak performance in September as the Fed hike diminished the appeal of non-yielding assets such as gold and silver. The rate rise led to a spike in bond yields, which now offer investors the chance to be paid stronger incomes.
However, energy remained firm as the US-Iran war continued. Later in the month, US president Donald Trump rejected Iran's offer to open the Strait of Hormuz, fuelling higher oil prices. Brent crude ended September up 15.9% in sterling terms, according to FE Analytics data.
The Fed hike and the higher oil price – which increases inflation and therefore means more interest rate rises could be on the cards – impacted property funds, with the IA Listed Property sector the second-worst performer in September, down 4%.
Source: FE Analytics
The table above shows the individual best and worst-performing IA funds over the month. At the bottom, Ben Yearsley, director at Fairview Investing, said the plethora of gold and mining funds was a marked shift from the summer.
"What a difference a month makes. August belonged to the gold bugs, September most definitely didn't. Nine of the 10 best-performing funds in August were commodity-related; this month seven precious-metals funds appear in the bottom 10," he said.
WS Amati Strategic Metals went from gaining almost 30% in August to losing 12.4% in September, while August winner SVS Baker Steel Gold & Precious Metals followed its 36% gain with an 11.5% fall.
Conversely, technology reclaimed centre stage, with the Polar Capital Global Technology topping the tables with a gain of 9.6%, followed by T. Rowe Price Global Technology Equity fund, up 9%.
"Seven of the top 10 funds had a technology, innovation or related thematic flavour, with August's sole non-commodity entrant, ARK Disruptive Innovation, sneaking into 10th place this month with a gain of 7.13%," said Yearsley.
"Despite seemingly endless debate over whether the AI boom has gone too far, investors still appear reluctant to leave the party."
Turning to investment trusts, it was a slightly different collection of sectors at the top, although the themes remained largely the same. IT Debt – Direct Lending was the best-performing sector, led by VPC Specialty Lending Investments, which rose despite being in the midst of a lengthy wind down.
A pair of VCTs were the best performers over the month, however, with Seneca Growth Capital VCT and Octopus Titan VCT both up more than 20%.
Source: FE Analytics
Yearsley said: "Investment trusts provided a rather different picture. There was no single dominant theme among individual trusts."
Elsewhere, IT Insurance & Reinsurance Strategies performed well, up 2.2%. Insurance-linked funds earn interest on the cash that backs their bonds, on top of the premium for taking on disaster risk, so higher rates feed straight into returns.
Among the list of individual top performers last month, Baillie Gifford US Growth is of note. The investment company announced strong full-year results ahead of another showdown with activist investor Saba Capital at its annual general meeting this month.
Saba, a significant shareholder, has requisitioned three board nominees for the AGM on 23 October and the trust's board is urging shareholders to vote them down.
Trust chair Tom Burnet said: "We urge all of our shareholders to make your voices heard: vote against the Saba resolutions to protect the future of your company."
At the other end of the spectrum, commodities and property trusts tanked, matching the trends from the open-ended space.
Trusts such as abrdn European Logistics Income and BlackRock World Mining Trust, down 36.4% and 9.1% respectively, highlight this.