Mid-Year Review 2024: AI boom and market surprises

Key takeaways:

• 90%* of Elite Rated funds and trusts have produced positive returns for investors so far this year
• US and Global continue to dominate at the top of the table – with one fund returning over 27%*
• UK Smaller Companies have outperformed Global Equities year to date*
• Small and mid-caps look promising for the second half of the year

Our take on 2024 so far…..

So far, growth in 2024 has remained steady. Equities, super-charged by a buoyant American economy, have outperformed bonds, with rate cuts taking longer than expected. Technology companies, largely benefiting from the surge in artificial intelligence (AI), have seen immense growth through the first half of the year. However, despite the long term potential, we believe the strongest returns may have already been made.

Read more: the hidden technology companies

The top regional performers for the year to date have been the US – experiencing a particularly good month in June – and India, which thrived after the slight blip during the elections. US and Indian equities are up 12.6% and 14.5% respectively year to date*.

Taking a closer look at Asia, Japan no longer seems as promising as it did in March, due to the weakness of the Yen. The market has lost most of its gains from Q1 in the last few months. Meanwhile, the poor sentiment in China offers a unique – and very cheap – opportunity for investors looking to gain exposure to the region. Asia and emerging markets look more polarised in terms of opportunities than previously, and investors should consider each on a case by case basis.

What’s to come for UK markets?

The IA UK Smaller Companies sector is up 9.3% so far this year, outpacing the IA Global sector (8.7%)* highlighting the potential turnaround for the highly unloved sector. The UK market could continue to be an attractive place for investors with increased M&A activity in the small-cap sector, plus share buybacks. Despite recent performance small-caps are particularly undervalued yet we continue to see potential for returns. Additionally, UK bonds have the potential to do well as rates are expected to come down as inflationary pressures ease, marginally favouring government over corporate bonds.

The best and worst-performing sectors in 2024

The IA Technology & Technology Innovation sector remains the best-performing sector in 2024, with the average fund returning 15.96%*. Followed by Indian equities (14.5%) and North America (12.6%) with UK Smaller Companies (9.3%) outperforming the Global sector (8.7%) year to date*.

Read more about the pros and cons for investing in India

For the second quarter in a row, Latin America appears at the bottom of the charts with a loss of 15.6% year to date*. Latin America was one of only three equity sectors at the bottom of the charts with fixed income making up 70% of the worst-performing sectors to date*. According to JPMorgan, both bond and equity markets saw an initial uptick at the beginning of 2024 due to an acceleration in global growth, declining inflation, and the anticipation of central bank rate cuts.. However, this was “too good to be true”. However, inflation has proved more persistent than expected, which has severely challenged government bonds in particular***.

Best-performing Elite Rated funds

The top funds are dominated by US and global equities. In terms of individual funds, the top two from Q1 this year are also top as the first half of the year comes to a close. The GQG Partners US Equity fund has returned 27.6%* followed closely by WS Blue Whale Growth and Guinness Global Innovators which have returned 22.6% and 20.4% respectively*.

The top three all have one thing in common: more than 70% of their portfolios invested in North America, as well as having fast-growing technology companies, Microsoft and NVIDIA in their top ten****.

*Source: FE Analytics, total returns in sterling, discrete calendar year, 21 June 2024

**Source: FE Analytics, total returns in sterling, 1 January 2024 to 31 March 2024

***Source: JPMorgan, 13 June 2024

****Source: fund factsheet, 31 May 2024