After several years of rapidly rising markets, 2014 has seen flatter performances from major developed market indices with the Bank of England poised to raise interest rates, the Fed tapering its monthly stimulus programme and the eurozone besieged by deflation fears and sluggish sentiment over its path to recovery.
Geo-politics has also been at the fore of investors’ minds for the first time in several years with conflicts flaring up from Ukraine to the Middle East throughout the year.
A recent article from FE Trustnet highlighted that several funds in the absolute return sector have managed to achieve returns more than four times that of the FTSE All Share over this period, suited to the choppier conditions.
However, more than a quarter of funds in the IMA universe lost money.
The worst performing sector of the year so far is IMA European Smaller Companies, with the average fund in the peer group losing 5.06 per cent.
Second worst is the IMA UK Smaller Companies sector, followed by IMA Europe ex UK and IMA Europe inc UK, demonstrating the torrid time European equities have seen over the course of year.
Source: FE Analytics
The recovery of the eurozone from its sovereign debt crisis in 2011 has been sluggish at best this year with the threat of deflation prompting a robust response from the European Central Bank to cut interest rates and hint at forthcoming quantitative easing.
The £265m CF Odey Continental European fund, managed by FE Alpha Manager Feras Al-Chalabi, has lost 8.52 per cent compared to an IMA Europe ex UK sector average loss of 1.9 per cent and a fall in the MSCI Europe ex UK index of 0.13 per cent.
Performance of fund vs sector in 2014
Source: FE Analytics
Other Europe funds that have lost the most include Cavendish Europe, SWIP European, Schroder European Alpha Plus and Gam Star Continental European Equity.
European Smaller companies funds that have lost the most include JPM Europe Smaller Companies, Aberdeen European Smaller Companies Equity and M&G European Smaller Companies.
Performance of funds, sector and index in 2014
Source: FE Analytics
Baillie Gifford UK Equity Alpha has been the worst performing fund this year having lost 14.67 per cent.
In comparison, the average fund in the IMA UK All Companies sector lost 1.49 per cent and the FTSE All Share is down 0.38 per cent.
Performance of fund, sector and index in 2014
Source: FE Analytics
It had top quartile returns in both 2013 and 2012 but has fallen to bottom quartile this year, also bringing down its three-year track record to bottom quartile.
The fund, managed by Gerard Callahan, has seen nine of its top 10 holdings lose more money over the course of year.
The only stock in Callahan’s top-10 to make money is Imperial Tobacco, which has risen more than 20 per cent in 2014.
Performance of stocks in 2014
Source: FE Analytics
The £1.2bn Standard Life UK Smaller Companies fund, managed by FE Alpha Manager Harry Nimmo, is also a notable underperformer having lost 10.54 per cent over the course of year compared to an average loss of 2.63 per cent in the IMA UK Smaller Companies sector.
Performance of fund, sector and index in 2014
Source: FE Analytics
Nimmo’s fund suffered following an aggressive sell-off in small cap stocks in March after the Fed chair Janet Yellen spooked markets by hinting that interest rates rise sooner than the market was expecting.
Nimmo told FE Trustnet back in June that his underperformance relative to his peer group was partly due to the activity of alternative strategies by hedge funds and absolute return funds.
At this point eight of his 10 largest holdings had lost money over the course of the year, with the likes of ASOS losing more than 50 per cent.
The £1.5bn Schroder UK Opportunities fund is the fourth worst performing fund in the IMA UK All Companies sector, losing 10.14 per cent.
The fund’s manager, Julie Dean, left at the beginning of September and has been replaced by Matthew Hudson.
Questions have been raised by investors as to whether a rapid increase in size to almost £3bn had been the culprit of its recent underperformance.
The fund boasts top quartile returns over three, five and 10 years.
However, Dean told FE Trustnet in June that it was mainly due to stock selection.
Other notable UK equity focused funds that have lost the most money include BlackRock UK Special Situations, M&G Smaller Companies, Schroder Dynamic UK Smaller Companies, M&G Recovery and SVM UK Growth.
