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The giant funds that lost you money in 2014

06 January 2015

Over 60 funds running more than £1bn of investor money failed to make a positive return in 2014, research by FE Trustnet shows.

By Gary Jackson,

News Editor, FE Trustnet

Last week, FE Trustnet took a look at the biggest winners and losers in the funds world across 2014, showing that those investing in Indian equities surged while those focused on Russia, energy and commodities had a terrible year.


However, many of the funds on those lists had relatively small assets under management (AUM), meaning most investors are unlikely to have any money with them. In this article, we look at the giant funds - which many more will be invested with - that lost money in 2014.


FE Analytics shows over 60 funds with AUM of more than £1bn failed to make a positive return last year with three of these posting double-digit returns. A number of these are very popular with UK retail investors and we’ll focus on three of them below.



 

Source: FE Analytics

As the above table shows, Evy Hambro (pictured) and Catherine Raw’s £3.95bn BlackRock Global Funds World Mining fund is the giant that has made the biggest loss after dropping 18.23 per cent. An investment of £1,000 at the start of the year would have shrunk to £817.75 by the end of it.


This was the one FE Crown-rated fund’s fourth consecutive annual loss, following respective falls of 25.37, 7.32 and 28.52 per cent in 2013, 2012 and 2011. All of these falls are greater than the losses made by its Euromoney Global Mining Index benchmark.


Commodities have fallen heavily over recent years, which has hit the companies the portfolio focuses on. It is overweight copper and iron ore miners but the price of the metals slumped in 2014 thanks to global surpluses in both.


Hambro concedes that the strong price falls are likely to weaken sentiment towards mining companies although he argues that further dramatic declines are unlikely.


“Recent commodity price moves are likely to abate some of the expected improvement in free cash flow within the sector and prompt earnings downgrades in the near term,” the manager recently told investors in his BlackRock World Mining Trust.


“However, many commodities are trading close to or below their marginal cost of production, implying that price downside should be limited in the absence of a collapse in demand.”


Performance of fund vs index over 5yrs

 

Source: FE Analytics

Despite BlackRock Global Funds World Mining’s recent run of lacklustre returns, it has retained the confidence of some fund analysts who point to the experience and established process of its management as positive for those seeking pure exposure to mining stocks while FE’s AFI panel of financial advisers include the fund in its aggressive portfolio.


Tom Dobell’s (pictured) £5.31bn M&G Recovery fund lost 9.59 per cent last year, underperforming both the average IA UK All Companies fund and its FTSE All Share benchmark by around 10 percentage points in the process. An initial investment of £1,000 fell to £904.07 by the end of year.


As many readers will be aware, the fund has had faced a difficult few years relative to its peers and is currently in its sector’s fourth quarter over one, three and five years. Since Dobell took over in March 2000, however, it has still made a first-quartile return of 135.79 per cent.


Dobell is a long-term investor who, by the nature of the fund, invests in contrarian opportunities. This means periods of underperformance can be expected. Returns over recent years have also been hampered by overweights to sectors such as energy, which suffered as the oil price plunged, and by being late into recovery stories such as banks and retailers.


Performance of fund vs sector and index over manager tenure

 

Source: FE Analytics

The manager continues to apply the fund’s longstanding investment approach without change, which is welcomed by analysts who point out that recovery investing is for the patient and demands a long-term view. The fund is also found in the AFI Aggressive portfolio and was recently chosen by FE Trustnet senior reporter Alex Paget as his one to watch in 2015.


Another big name on the list of giant funds that lost money last year is FE Alpha Manager Harry Nimmo, whose £1.13bn Standard Life Investments UK Smaller Companies fund shed 8.54 per cent and turned an initial investment of £1,000 into £914.64.


UK small-caps suffered in 2014 after investors took profit from the asset class following its extremely strong run over the previous years. Nimmo’s fund was one of the hardest hit in 2014, being ranked 47th out of the 53 products in the IA UK Smaller Companies sector.


Standard Life Investments UK Smaller Companies completely sold out of former top holding ASOS this year after the online fashion retailer’s share tanked on the back of earnings revisions and supply problems. The manager had described the holding as his best ever investment, having needed to continuingly top-slice his position as its value grew. He made a healthy profit from it despite the recent problems.


Last year Nimmo told FE Trustnet that a “major market over-reaction” caused his fund’s underperformance, blaming hedge funds and other large investors’ snap decisions to drop small-cap ETFs and derivatives as the reason for this asset class’ struggles.


The fund’s long track record of successfully navigating the small-cap market means fund pickers have not deserted it because of 2014’s disappointing returns. Square Mile, for example, gives it the top ‘AAA’ rating and says it is “an extremely credible investment proposition” for those seeking long-term exposure to that part of the market.


Performance of fund vs sector since launch

 

Source: FE Analytics

Later in the week, FE Trustnet will look at the giant funds that made their investors the most money in 2014.

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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.