How did the AJ Bell funds perform in the second quarter?

The second quarter of this year saw the majority of markets rise across the globe, but how did different markets perform and how did the AJ Bell funds react to those market changes? We caught up with James Flintoft, Head of Investment Solutions at AJ Bell, to discuss the outlook, key events that affected markets and how the AJ Bell funds performed in the period.

What were the key things impacting markets this quarter?

Generally, the mood in markets has been good. Inflation is still a big theme, and the knock-on impact that it can have on interest rates and the UK's economic growth. Economic growth is picking up in a couple of key regions, such as the UK and China, and inflation's coming down notably in the UK, with inflation back at the 2% target. Although it might bounce back up a little bit in the coming months.

That's prompted the Bank of England to think closely about interest rates and when to make the first interest rate cut. They held off in June because of the surprise of the general election in early July, but they'll be revisiting that conversation in the coming months.

On top of that, politics is clearly at the fore at the minute, not just in the UK, but in South Africa, Mexico, India and France. And while a lot of that was expected at the start of the year, now it's having a real impact on markets.

How did equity markets perform respond to all those things?

Equity markets had another decent quarter, the US did well again but was joined by regions such as the UK and emerging markets. In the UK there's been a spate of takeover offers, which has lifted the mood in markets a little bit, and international investors are looking at that more closely.

And also, of course, we've got the election, which provides the opportunity for some form of clarity and stability, which has been a factor that international investors have been wary of in recent years. If we look at other developed markets, like Japan, that's gone off the boil a little bit, there's been some weakness in the currency over there that has impacted returns. And it’s a similar case in Europe, because of that surprise French parliamentary election, which caused a sudden drop in the French market.

But, there's been lots of good news. China's looking brighter in terms of economic growth, and the markets picked up after a pretty bad couple of years. In India, it was a rocky quarter, there was a slight surprise in the election results over there, but on the whole it performed pretty well.

And what have we seen in bond markets?

Bond markets have been a bit quieter and that's been a relief after the past couple of years. Government bonds haven't done so well this quarter, which isn't much of a problem for our portfolios when equity markets are performing so well. There's now a sense that, should equity markets perform poorly, bonds may actually do their job and protect the portfolios going forward. In particular, corporate bonds have had another decent quarter of returns as well.

Politics seems to influence markets so much at the moment, how do you deal with that?

We generally try not to allow these sorts of events to influence our thinking, because generally we don't believe that we know any more than anybody else. And even if we did have some sort of special insight, how would that really impact market pricing? It’s very unpredictable.

So we try to sit back, think about the long term, and just make sure that when we're constructing the portfolios they're ready for some choppier times that may come about during elections.

Let's drill down then into AJ Bell funds. How did they perform over the second quarter and in the year so far?

Generally, we’ve seen another period of good performance from the funds. The returns have been fairly progressive across the range of funds – meaning that the high risk portfolios have delivered the highest returns. The only difference is with the Global Growth Fund, where the Chinese equity markets had a struggle last year, which has impacted the returns for that fund over the longer term.

The income funds have performed well, although dividend paying stocks haven't been quite as strong as their more growth-orientated peers in areas like the technology sector in the US, for example. And then finally the Responsible Growth Fund, which had another decent year and the past three months have also delivered decent performance. But because of the criteria on that fund it has a lower allocation to some US companies, meaning it has missed some of the gains we’ve seen there.

Have you made any changes to the funds recently?

We haven't made any changes to the asset allocation since January. We do have a couple of ideas that we're looking into, but it's too early to suggest that we'll take any action on those. Generally, we're trying to position these portfolios for the long term, and that means that we don't interfere in the position too often.

Find the latest quarterly reports for each of the AJ Bell funds here

Watch the full video here.