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The funds that have fallen hardest in the 2014 downturn

03 February 2014

FE Trustnet looks at how investment trusts and funds have started the year, which has been a turbulent one so far for equity markets.

By Joshua Ausden,

Editor, FE Trustnet

Emerging markets funds with a focus on the BRIC countries have fared worst in the recent sell-off in equity markets, according to FE research, with many already shedding more than 10 per cent in 2014.

Robin Geffen’s Neptune Russia Special Situations portfolio has been the worst performer overall, with losses of 12.95 per cent, joined at the bottom of the tables by the likes of Baring Russia, First State Latin America and Baring Eastern Europe.

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Source: FE Analytics

While equity markets have fallen across the board in recent weeks, emerging markets have suffered the most, adding to the misery most funds in this sector experienced in 2013.

The tapering of quantitative easing in the US and the increasing possibility of rising interest rates before the year’s end have put severe pressure on emerging market currencies, particularly in Turkey, India and Argentina.

Waning sentiment has compounded the losses, with some reports suggesting that the final week of January saw as much as $6bn pulled from emerging market equity funds – the biggest seven-day redemption on record.

More volatile single-country funds suffered particularly badly, but diversified funds in the IMA Global Emerging Markets sector were also hit hard, with the average one down 6.59 per cent so far this year.

Aberdeen Global Emerging Markets Smaller Companies
, JPM Emerging Markets and Fidelity Emerging Markets all lost more than 7.5 per cent, while favourites Aberdeen Emerging Markets Equity and First State Global Emerging Markets Leaders lost 7.15 and 6.63 per cent, respectively.

Performance of funds and sector in 2014

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Source: FE Analytics


Every IMA Global Emerging Markets fund has lost money so far in 2014, with only Carmignac Emerging Discovery and Standard Life Global Emerging Markets Equity managing to lose less than 4 per cent.

The recent poor performance of emerging markets has hit Aberdeen Asset Management’s share price, down almost 24 per cent so far this year.

The turbulence in developing economies has had a knock-on effect on the developed world, with many investors using the uncertainty in markets as an excuse to take profits.

Japanese, European and North American IMA sectors, which all made double-digit returns during a fruitful 2013, have all fallen by around 3 per cent so far this year, with the IMA Global and Global Equity Income sectors falling by similar levels.

On a fund-specific basis, unsurprisingly it has been those with exposure to emerging markets – either directly or indirectly – that have struggled this year. This includes those that have a hefty exposure to multinational mega cap companies, which have been hit by the waning sentiment in developing countries.

This is clearly shown by the fact that the FTSE 100, which is heavily skewed towards the 20 largest companies in the UK such as BP, Shell and HSBC, has significantly underperformed the small and mid cap market so far this year.

Performance of indices in 2014

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Source: FE Analytics

Mega cap focused funds such as M&G Pan European Dividend, Aberdeen UK Equity and M&G Dividend have all lost in excess of 4.5 per cent so far this year. Small and mid cap focused funds have held up much better, however.

Across the various developed market sectors, Mark Slater’s MFM Slater Growth fund and Hideo Shiozumi’s Legg Mason Japan Equity fund are standout performers, managing positive returns of 5.84 and 6.45 per cent respectively. The Legg Mason portfolio was among the five best performers in the IMA universe in 2013.

Speaking with regard to the UK small cap market, Henderson’s Neil Hermon (pictured) says the recent strong performance of small caps in spite of the sell-off shows that valuations remain reasonable.

ALT_TAG “The strong performance of small and mid cap funds has been going on for a while now – so far this year small caps are actually up,” he explained.

“Short-term movements are always hard to judge, but small caps have had a good run recently because investors have gravitated to stocks that benefit from the strengthening UK economy.”

“Small and mid caps are on a 10 per cent premium to mega caps from a valuation point of view, and at this stage of the cycle I think this is justifiable.”

Hermon says that mega caps such as BP and Shell are on heavy discounts after their recent poor performance, and he has recently added to the latter in his multi-cap focused Henderson UK Alpha portfolio.


However, in general the manager is positive on small and mid caps, believing that an increase in M&A activity will drive performance in 2014. That said, he doesn’t think markets are capable of repeating their stellar performance of 2012 and 2013.

Looking at the top end of the performance tables, gold mining funds have been completely dominant. Fears of a full-scale emerging markets crisis have stemmed the negative sentiment towards gold for the time being, and gold miners have rebounded strongly from very low levels thanks to their disastrous performance in 2012 and 2013.

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Source: FE Analytics

FE data shows that the best performer of 2014 so far has been Angelos Damaskos’ MFM Junior Gold fund, which is up more than 20 per cent. Other strong performers include Smith & Williamson Global Gold & Resources, Investec Global Gold and BlackRock Gold & General.

Richard Troue, analyst at Hargreaves Lansdown, thinks it is too early to say that gold mining companies have turned the corner, though he does think they’re an interesting area for value investors.

“Shares in gold mining companies have staged a mini-resurgence following a torrid 2013 where the gold price and earnings fell as investor sentiment towards the sector was highly negative,” he explained.

“It is too early to call a turnaround in the fortunes of these companies, but many have worked hard to reduce costs, and changes in management at the top level have seen a greater focus on shareholder returns.”

“In January we saw gold mining companies recovering faster than the gold price. If companies can start to deliver earnings growth in 2014 and 2015, the share price recovery could continue.”

Gilts have also benefited from the added uncertainty of late, with the average fund up 2.18 per cent. No IMA sector has returned more over the period. Every other fixed interest sector has managed a positive return so far this year, with the exception of IMA Global Emerging Markets Bond, which is down 2.29 per cent.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.