Energy and value UK funds hardest hit in market sell off

•    93% of funds are sitting on losses in the year so far
•    UK funds make up 43 of the 100 worst performing funds
•    Energy funds deliver worst returns after oil price collapse
•    85% of the top performing funds are bond-focused

Laura Suter, personal finance analyst at investment platform AJ Bell, comments:

“The majority of funds have delivered losses in the year so far, with investors struggling to escape the market falls. In total 93% of funds are recording a loss in the year so far, showing how badly fund investors have been hit as markets across the globe have fallen in the Coronavirus fallout. 
“While the year-to-date is too short a time period to assess fund performance, we can see which fund investors have had to weather the worst losses. Looking at the 100 worst performing funds in the year so far, 43 are focused on UK markets. The UK stock market has taken a battering during that time, with both the FTSE 100 and FTSE All Share down 28%. 
“However, some UK-focused funds have performed far worse than the market. Those funds focused on ‘value’ style stocks that the fund managers believed were primed for recovery have been the biggest losers, with ASI UK Recovery the worst performing UK fund, down almost 42%, while GVQ Opportunities, which also hunts out value stocks, is down 37%; Investec UK Special Situations has fallen 33.5%; M&G Recovery has fallen 32%; and Schroder Recovery has dropped 31%.
“If you delve into the portfolios of these funds you can see where some of the issues lie, with BP, which has fallen 40% since the start of the year, being held by the Investec, M&G and Schroders funds. Meanwhile Standard Chartered, which is owned by the ASI and Schroders funds, is down 36% over that time.

“Investors in energy funds have been among the hardest hit, with the two worst performing funds this year being energy-focused: Schroder Global Energy, down 58%, and BlackRock World Energy, down 47%. There’s a double whammy here, with the impact of the oil price collapse hitting returns while energy stocks have also been dragged down in the market rout. The MSCI World/Energy index is down 42% in the year so far, with oil stocks among the worst hit among the FTSE 350 in 2020 so far: Premier Oil is down 84%, Tullow Oil is down 83% and Cairn Energy has fallen 66%.

“Emerging market funds have been some of the worst performing too, with the oil price fall hitting these markets as well as Coronavirus fears. Among the worst performing funds are HSBC GIF Brazil Equity, down 45%; BlackRock GF Latin America, down 39%; and Barings Latin America and JP Morgan Latin America Equity, both down 38%. Emerging markets have actually fallen less than many developed markets, with the MSCI Emerging Markets index down 14% in the year so far. But any funds with exposure to the energy sector will have been hit harder, while the China slowdown as a result of Corona will have hit other emerging market funds.

“On the plus side, some funds have managed to deliver positive returns during these tumultuous markets. Bond funds have handed investors gains over the year so far, with 85% of the top 100 funds for performance being bond funds. Among the top performers are the Threadneedle Global bond fund performing the best and returning 12%, while the iShares Over 15 Years Gilts Index and Vanguard UK Long Duration Gilt Index have both risen 11%. This shows the importance to investors of diversification, and ensuring they have a spread across not just different equity markets but also bonds, property and cash as diversifiers.

“Fund investors shouldn’t react to such short-term market moves, as the worst thing many could do is sell the funds now and lock in losses. In theory, times of market volatility are when active fund managers can prove their worth.  While a tracker fund will simply move with the market, an active fund can perform better (or at least lose less money) if the fund manager gets their stock selection right.  
“During market sell-offs many fund managers would argue they can use the falls to hunt our bargains and unfairly discounted stocks in order to profit when markets rebound. However, very few active fund managers consistently outperform the market so it is important that if you are going to choose an active fund you understand the manager’s investment approach and what they are trying to achieve over the long term.”
 

Worst performing funds:

Best performing funds: