Gold-related equity funds did extremely well in the first three months of the year, thanks to rising bullion prices, while Latin American equity funds also prospered.
Seven of the top 10 equity funds in the three months to March 31 were based on gold and metals, according to local unit trust distributor Fundsupermart.
Mr Kean Chan, senior analyst at Fundsupermart.com, noted that gold prices began the year with a bang, surging 16.7 per cent from early January to the end of February.
They rose on the back of concerns over increased monetary easing from Europe and Japan and the health of European banks, and ended the quarter with a 16.1 per cent increase in US dollar terms.
The top gold fund was Deutsche Noor Precious Metal Securities Fund, which achieved returns of 41.2 per cent in the quarter, followed by Franklin Gold & Precious Metals Fund, which rose 36.5 per cent, Investec GSF Global Gold Fund, up 36.2 per cent, and the BlackRock Global Gold Fund, ahead 32.7 per cent.
Brazil was the top performer among equity markets. Brazilian equity fund HSBC GIF Brazil Equity was up 20.8 per cent, while the Parvest Equity Brazil rose 17.3 per cent amid signs that President Dilma Rousseff might be impeached, a move that could help ignite economic reform.
The surge in Brazilian equities also boosted the performance of Latin American equity funds.
Healthcare and Japanese equity funds saw a reversal of fortune in the quarter, going from being the top performers last year to the bottom performers in the first quarter this year.
The sell-off in biotech and healthcare stocks left Franklin Biotechnology Discovery Fund down 28.1 per cent, while United Global Healthcare Fund slumped 17.6 per cent and Parvest Equity World Health Care dropped 17 per cent.
The global financial sector also showed a poor performance, with hefty declines in the share prices of many big banks worldwide in January, amid concerns of profitability given negative interest rates in Europe and Japan. There was also uncertainty over the pace and magnitude of future rate hikes in the United States.
That left BlackRock Global Funds-World Financial Fund down 15.9 per cent and JPMorgan Funds-Global Financials Fund behind 14.9 per cent in the quarter.
Additionally, sterling's weakness over "Brexit" concerns has skewed the performance of equity funds that operate with a British pound currency hedge, such as the BlackRock Global Funds-European Special Situations Fund (GBP-Hedged) and BlackRock Global Funds-European Fund (GBP-Hedged).
Mr Chan noted that while equity markets had a turbulent first quarter this year, bond markets in general had a "relatively decent quarter" because they benefited from the bouts of risk aversion in financial markets worldwide.
"Investors who have a proportion of their portfolios in bonds (which they should) will take comfort in the fact that the average bond fund has held up in the first quarter, with the FSMI All Bond Index posting a 0.58 per cent gain," he said.
Bond funds that invest in emerging market, hard-currency bonds were among the top performers as well.
The rebound in many emerging market currencies against the US dollar actually boosted the performance of these funds.
The Brazilian real rose 10.2 per cent against the greenback between Jan 1 and March 31, the Russian rouble increased 8.9 per cent, while the Malaysian ringgit rallied 10.8 per cent. The Turkish lira and Indonesian rupiah also rose.
The Neuberger Berman Emerging Market Debt-Local Currency Fund (SGD-Hedged) led the pack among emerging market bonds here, posting returns of 15.4 per cent.
What is next?
Wealth management firm Providend noted in its latest monthly report that the markets will likely remain volatile for the rest of the year, partly due to the slowdown in emerging economies, the uncertainty over demand for commodities and the uneven recovery in developed markets.
The turbulent first quarter serves as a reminder to retail investors that market sentiment can change or turn around fairly quickly and unexpectedly, said Mr Chan.
His advice is to avoid knee-jerk reactions - such as chasing sharp rallies or selling on rumours of bad news - and to assess fundamentals and stay disciplined and focused on the long-term horizon.
Retail investors with strong exposure to gold-related funds may want to rebalance their portfolio, given that the sector has run up strongly over the first quarter.
Mr Chan recommends rebalancing into attractively valued market segments such as the US high-yield market and Asian equities, which should stand investors in good stead over the next few years.
Investors who have no exposure to the gold-related sector can consider a dollar-cost averaging approach if they want a slice of the sector. This will allow them to add more at lower prices on any potential weakness instead of chasing today's prices, which are significantly higher than at the start of the year.
Mr Chan said the NYSE Gold Bugs Index delivered a phenomenal gain of 60 per cent (in US dollar terms) from January to last month.
Furthermore, it sometimes pays to look at markets or segments that have been underperforming in recent times.
"It is those areas where valuations normally are compelling and attractive, and may have a higher return potential over the long term when things eventually recover," he added.
