Investors have been vindicated in buying back into the worst performing funds of 2014 and been rewarded with double digit gains over the course of last year, according to research by FE Trustnet.
You would have lost the most money by investing in Russia focused funds back in 2014 thanks to the Ukrainian February revolution and the later standoff with Russia as the latter annexed the Crimean peninsula and western nations imposed tough sanctions. On top of that, the large declines in the oil price hurt the region which is has an economy biased towards energy.
This caused a huge fall in sentiment for investors into Russia with all but the highly contrarian investors selling their exposure. According to FE Analytics, the MSCI Russia lost 42.92 per cent in 2014 but made a sharp snap back in 2015 although it is still down from its high before the crisis.
Performance of index since 2014
Source: FE Analytics
For funds such as Pictet Russian Equities, Baring Russia HSBC GIF Russia Equity and JPM Russia this meant losses of more than 40 per cent in 2014 and for Neptune Russia & Greater Russia it meant a close to 50 per cent loss in.
However, should you have bought them at the beginning of the year and held the course until end of 2015 you would have seen a decent double digit return in three out of five of these funds with the other two offering high single digits numbers.
This meant that all the Russia funds were towards the top end of a table of all the 3000 or so portfolios in the Investment Association for last year in what was a tricky year for investors.
Source: FE Analytics
However, you would have been much better off selling the exposure at some point in the first four months of the year with most of these funds up more than 40 per cent by April and then gradually losing money from then on.
Over this period the Russian economy has been slowing along with several other large emerging markets with the commodities and oil rout being a dual-headwind, while the geopolitical tensions with Turkey also weighing heavy.
Of course, emerging markets as a whole have been out of favour with global investors and in the past year with things going from bad to worse. Therefore, most cut their exposure which added to the woes for Russian equities.
However, more than a third of funds in the sector have more than 3 per cent in Russian stocks at present, according to our data.
Aside from the five specific Russia funds already mentioned, there are also a host of funds focus on emerging Europe such as Charlemagne Magna Eastern European, Baring Eastern Europe and JPM Emerging Europe Equity which fared very badly in 2015 and carried on losing money in 2015.
Invesco Perpetual Emerging European did have a single-digit bounce back, though.
Dean Newman, Invesco Perpetual’s head of emerging market equities, says Russia is still out of favour with investors but that 2016 could see a change of fortune.
“In Russia, the economic landscape is less upbeat although there are some encouraging signs that the economy is reaching a trough. Furthermore, we expect local exporters to continue to derive benefit from a weaker rouble exchange rate,” he said.
A torrid year for energy funds was another trend in 2014 that saw portfolios such as Schroder ISF Global Energy, Artemis Global Energy, Investec Global Energy and Guinness Global Energy lose more than 25 per cent.
The major reason for this is the ongoing plunge in the price of oil which began its rout in the beginning of June 2014 and has, apart from early 2015, done nothing but fall ever since. Today it touched below $30 per barrel for the first time since April 2012.
Unfortunately, for these funds this trend meant they also had a dire 2015 losing a further 25 per cent or so.
Performance of funds in 2015
Source: FE Analytics
Most investors are still bearish on energy stocks with this was particularly affirmed in the first two weeks of 2016 due to heightened negative sentiment towards China making the expectation of a snap back for oil unlikely, according to many commentators.
Peter Toogood, investment director at City Financial, - among many others - says while energy and commodity stocks are looking very cheaply value, they have not reached their final lows just yet.
Schroders' head of commodities Geoff Blanning, on the other hand, says: “Energy looks like the sector with the greatest potential for price appreciation in 2016, although risks remain in the short-term.”
“With oil priced at $30/barrel, it is more likely than ever that US production will fall steeply in 2016, and commence declines in many other regions too. Further potential gains from OPEC producers – primarily Iran but possibly Libya too – will be insufficient to outweigh non-OPEC declines in the medium-term.”
He added: “Assuming global demand continues to grow at a modest rate, therefore, it is logical to forecast a solid price recovery as the year progresses.”
