Which funds were the top performers in April 2022?

Did passive funds do better than active funds?

It’s been a difficult time for investors this month as logging into an investment app is accompanied with a heart-in-your-mouth moment of dread. How low can you go?!

Let us know what you think of the current market situation by posting a comment.

Inflation is rearing its ugly head and there are growing signs that a recession is looming. The Nasdaq is hard hit but the S&P 500 is not looking much better. Europe hangs under a cloud of energy-induced nerves. And even bonds are not helping much, with a negative yield curve in the States basically raining on long-term bonds’ parade. I wrote more on this in a recent blog you can check out here.

Even crypto – a play on the side for many - is looking a bit green around the gills. So what to do?

I always think it’s interesting to have a look at what DIY investors are up to en masse. So I love the monthly updates we run which show the best-selling funds and investments in the market.

And in ongoing signs of nothing doing what it is supposed to, lots of April’s bestsellers were passive funds.

This is odd because the received wisdom is that active funds should outperform in falling markets. Why? Well let’s say for example, that we’re back in Covid-induced lockdown, short-termers might want to get rid of oil, airline and travel stocks, for example, but by definition the passive guys cannot as of course the whole point is they have no discretion. So they cannot pare back or eliminate holdings in things which we kinda all know are going to have a terrible 12 months.

At the moment, tech stocks are being hammered. Anyone who owns Scottish Mortgage will know this all too well! And there is a general consensus that so-called Value stocks will have their moment in the sun. But passive funds cannot cherry pick and so this should logically be a time when stock pickers (active managers) shine.

We recently ran a webinar with BlackRock’s manager of the Small Cap Investment Trust. Roland Arnold is a stock picker so is not constrained by sectors or regions or whatever. He basically picks smaller companies which he thinks are going to thrive. Now small caps generally do pretty badly in tougher economic climates – that’s the received wisdom. But this webinar is worth a listen for an opinion on how there are still decent companies out there, positioned to do well, which backers believe will hold up even in tougher economic circumstances. Roland makes the point – about Watches of Switzerland for example – that if someone has been on a waiting list for a £5,000 watch for 2 years, they are not going to change their mind because their gas bill has gone up by £300 a month.

Back to the wisdom (or folly?) of crowds and April saw many passive funds in the most bought lists, bucking the received wisdom of how to behave in falling markets. It’s just a hunch, but I think it’s so hard to call things right now, that it’s actually easier to pick a broad mix of passive funds, stay in the market but don’t try to pick what will do well, and to some degree put your ear plugs in and ride out this storm, removing the need to make decisions as much as possible.

What do you think? Let us know by adding a comment below.

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