An overwhelming majority of investment funds have posted losses since the start of the year with high-growth tech leading the charge downhill.
Just 6 per cent of funds in the Investment Association universe posted positive returns in the first half of the year, according to research by Quilter Cheviot.
Headwinds, ranging from sky-high inflation, to rapidly rising interest rates and Russia’s Ukraine invasion have sent markets into a tailspin.
Investors struggling to adopt to a new world of higher rates and inflation and fearing recession to come have ditched stocks, with US shares having their worst first half of ayear in more than 50 years and since 1 January the MSCI AC World index is down 20 per cent.
Stocks have suffered their worst start to the year in over 50 years and the story is no different for funds, which have struggled to generate positive returns
While fund managers may claim they can beat the market, that’s not been the case for most with more than 95 per cent struggling to generate returns against this backdrop.
Most sectors of the economy have been affected by the combined pressure of inflation, interest rates and the Ukraine invasion, bar a few exceptions.
Few predicted Russia’s invasion on Ukraine but those who did, or held firm on energy funds, have seen strong returns.
Energy and commodities have been propelled by supply/demand issues for raw materials and energy, and funds with exposure occupy the top five positions.
Of the 10 best-performing funds, eight are in the energy and commodity sector. Absolute return manager AQR filled the other two spots.
The best-performing fund in the six month period was the BGF World Energy Fund, managed by Alastair Bishop and Mark Hume, which is up 39.47 per cent in total returns.
The fund invests at least 70 per cent of its total assets in energy companies and its top holdings include Shell, Exxon Mobil and Chevron.
|Total returns (%) in GBP|
|BGF World Energy||39.47|
|Schroder International Selection Fund Global Energy||34.64|
|Goldman Sachs North America Energy & Energy Infrastructure Equity||34.37|
|TB Guinness Global Energy||31.06|
|Multicooperation GAM Commodity||30.47|
|Guinness Global Energy||28.05|
|AQR Systematic Total Return||27.95|
|AQR Managed Future UCITS||27.89|
|LO Funds Commodity Risk Premia||25.57|
|Source: Morningstar, Quilter Cheviot as at 30 June 2022|
This was closely followed by Schroder ISF Global Energy, which returned 34.64 per cent in the same period.
The fund, which is managed by Mark Lacey, primarily invests in energy companies with 73 per cent of the fund’s assets in international equities.
Its top holdings include Portugese company Galp, Shell and Coterra Energy.
The fallout from the invasion saw Liontrust Russia top the list of worst-performing funds. ITs portfolio plunged when Russia invaded Ukraine and the country was hit with a series of sanctions, while companies rushed to close businesses there or sell them off and investors dumped Russia-related shares.
The portfolio , which is managed by Thomas Smith and includes top Russian companies like Gazprom and Ronseft, is down 53.08 per cent.
‘It was no surprise to see Liontrust Russia propping up the table, the fund now suspended for obvious reasons. Likewise, the Fidelity Emerging Europe, Middle East and Africa Fund also suffered from significant Russia exposure,’ said Nick Wood, head of fund research at Quilter Cheviot.
While the Liontrust fund is the worst-performing, the list is dominated by funds biased towards high growth stocks which have suffered from the market rotation towards value.
|Morgan Stanley US Growth Fund Z||-52.51|
|Nikko AM Ark Disruptive Innovation||-52.08|
|Morgan Stanley US Advantage Fund||-49.44|
|Baillie Gifford American||-49.10|
|Morgan Stanley Global Insight||-48.93|
|Fidelity Emerging Europe, Middle East & Africa||-48.72|
|Morgan Stanley US Advantage||-47.79|
|T. Rowe Price Global Tech Equity Qd||-46.84|
|T. Rowe Price Global Tech Equity CAcc||-45.43|
|Source: Morningstar, Quilter Cheviot as at 30 June 2022|
Disruptive growth gets disrupted
Rising interest rates tend to favour value stocks over growth because they are less likely to suffer from the discounted value of future earnings.
This has meant so-called disruptive growth companies and tech stocks have had a prolonged period of underperformance, with the tech-heavy Nasdaq index down more than 25 per cent in the six months to the end of June.
Four funds run by Morgan Stanley featured in the list of worst performing funds, along with representation from other growth investors T. Rowe Price and Baillie Gifford.
Investment manager Cathie Wood, who runs the ARK funds in the US, also featured in the bottom ten via a vehicle white labelled by Nikko Asset Management. Its total returns came in at -52.08 per cent.
Wood and her ARK funds have regularly hit the headlines given how volatile performance has been. The ARK Innovation ETF, which tracks high-growth stocks like Tesla, has bounced back in recent weeks but is still down around 50 per cent in the year to date.
Disappointing performances by tech focused funds and the resurgence of value stocks have put pressure on stockpickers.
Top 10 funds on Interactive Investor (June 2022)
1. Fundsmith Equity
2. Vanguard Lifestrategy 80% Equity
3. Vanguard LifeStrategy 100% Equity
4. Vanguard FTSE Global All Cap Index
5. Vanguard US Equity Index
6. Vanguard FTSE UK Equity Index
7. Vanguard LifeStrategy 60% Equity
8. HSBC FTSE All World Index
9. TB Guinness Global Energy Fund
10. FTF Clearbridge Global Infrastructure Income Fund
What are investors buying now?
An analysis of the top fund picks in June by DIY investment platform Interactive Investor reveals Terry Smith’s Fundsmith Equity was the only ‘active’ name in the top 10, albeit in the top spot.
Seven of the top 10 funds were passive funds, with only one fund being UK focussed – Vanguard FTSE UK Equity Index.
‘For now at least, fund investors are preferring to look for low cost, dispassionate passives. And given that in volatile markets the impact of charges can be felt all the more, it isn’t an unreasonable strategy,’ said Dzmitry Lipski, II’s head of funds research.
Investors are also looking to alternatives as a hedge against inflation with TB Guinness Global Energy Fund and FTF Clearbridge Global Infrastructure income fund featuring in the top 10 of II’s fund picks.