Though it has rallied back over recent weeks, the substantial fall in oil over recent years has proven to be a severe headwind for most investors. 
According to FE data, the oil price has generally been falling since 2011 but the intense drop started in mid-2014 thanks to the onset of the shale gas revolution, slowing growth in emerging markets and OPEC’s decision not to step in and manage the market.
It means that between June 2014 and the end of January 2016, the S&P GSCI Brent Crude Spot index fell a whopping 69.98 per cent.
Performance of index between June 2014 and January 2016
Source: FE Analytics
While many market commentators have talked about the benefits of a low oil price (which fell to less than $30 per barrel) given it gave western consumers more spending power, more recently, the falls only added to deteriorating investor sentiment as many saw it as a further sign of worsening global economic health.
Certainly, it is no coincidence that between June 2014 and January 2016, 45.9 per cent of all funds in the Investment Association universe lost money.
When you drill down a little further, however, you can see that there have been clear winners and losers in this environment.
For example, the best two performing major regional equity indices during the period in question were the S&P 500 and the Nikkei 225 (which made 16.69 per cent and 12.22 per cent respectively). The US index has very little exposure to oil, while Japan is huge importer of energy.
The falling oil price clearly had a big effect on the MSCI Europe ex UK, the FTSE All Share and the MSCI Emerging Markets (which, as economies or indices, are far more sensitive to oil price movements) and have all posted double-digit losses.
This trend is highlighted to an even greater degree when you look at the best-performing funds over the period – as the best performers are all very much consumer-facing.
The 10 best performing funds when the oil price fell 70 per cent
Source: FE Analytics
As the table above shows, the best performing portfolio in the whole Investment Association universe between June 2014 and January 2016 was the five crown-rated Invesco Korean Equity fund with gains of 44.66 per cent.
South Korea, as an economy, is one of the largest consumers of oil in the world and, according to the US Energy Information Administration, imports 97 per cent of its energy.
Apart from the falling oil price, there have been a number of reasons why Korean equities have come back into favour of late such as corporate reforms, a rate cut from the Bank of Korea and the fact it benefits from increasing spending from Chinese consumers.
However, the main driver of the $289.5m Invesco Korean Equity fund’s performance over recent years has been down to FE Alpha Manager Simon Jeong’s positioning.
FE data shows, for example, that he holds 39.2 per cent of his portfolio in consumer staples, 29.5 per cent in healthcare and 17.6 per cent in consumer discretionary stocks. More importantly, though, he has next to no commodity-related exposure apart from a 4.46 per cent weighting to industrials – which is solely invested in Kepco Plant Service and Engineering.
Invesco Korean Equity has been a strong long-term performer as well. Since Jeong became manager in May 2006, the fund has returned 135.40 per cent – meaning it has beaten its benchmark, the Korea Stock Exchange Composite index, by close to 100 percentage points.
Apart from the Polar Capital Biotechnology and Candriam Equities Biotechnology – which have benefitted from a significantly bullish sentiment over recent years towards the area of the market they focus on – the other top-performing funds on the list have all been beneficiaries of lower oil prices to one degree or another.
For example, two of the funds purely focus on US mega-caps – JB Multistock Health Innovation and Legg Mason ClearBridge US Large Cap Growth – while domestic-orientated Japanese, UK and European funds also feature.
Performance of indices over 5yrs
Source: FE Analytics
Hideo Shiozumi’s Legg Mason IF Japan Equity fund is third on the list with gains of 38.45 per cent and is one of the highest beta members of the IA Japan sector due to its bias towards mid and small-caps.
Japan, as an economy, imports nearly all of its energy and Shiozumi’s positioning means he has hefty exposure to the Japanese consumer. Apart from a plummeting oil price, the fund has also benefitted from the Bank of Japan’s large-scale quantitative easing programme.
FE Alpha Manager David Crawford’s City Financial Absolute Equity, which returned 32.35 per cent over the period in question, was one of the best performing UK-related funds last year thanks to the manager’s short positions in large-cap commodity stocks but long bets on FTSE 250 stocks, which tend to be more domestically-orientated.
One of the most consumer-exposed funds in the whole Investment Association universe is FE Alpha Manager Terry Smith’s Fundsmith Equity fund – and it’s therefore no surprise it features with gains of 30.26 per cent.
Smith runs a very concentrated portfolio of mega-cap stocks that have reliable earnings, sound balance sheets and strong franchises. As Smith puts it, his £5.1bn fund is “just a small number of high quality, resilient, global growth companies”.
His largest holdings, for example, include Microsoft, Imperial Tobacco, Johnson & Johnson and PepsiCo.
This approach has worked extremely well since the fund’s launch in November 2010, as it has been the IA Global sector’s third best performer with returns of 155.82 per cent, beating its MSCI World benchmark by 50 percentage points in the process.
Performance of fund versus sector and index since launch
Source: FE Analytics
The other top-performing funds during oil’s 70 per cent slide are Man GLG Continental European Growth and Stewart Investors Indian Subcontinent.
Turning to the other end of the spectrum now and it comes as no surprise to see which were the worst performing funds between June 2014 and January 2016.
Sitting bottom out of a possible 3,185 portfolios, MFM Junior Oils lost a hefty 70.54 per cent and it is joined by other oil-focused funds such as Schroder ISF Global Energy, LO Funds Global Energy, Artemis Global Energy and GS North American Shale Revolution & Energy Infrastructure which all lost between 52.9 per cent and 67.83 per cent.
The 10 worst performing funds when the oil price fell 70 per cent
Source: FE Analytics
Of course, oil hasn’t been the only commodity to fall in value over recent years so intermingled with energy portfolios, the other worst-performing funds include WAY Charteris Gold & Precious Metals, MFM Junior Gold, JPM Natural Resources and HSBC GIF Brazil Equity – which is highly sensitive to commodity prices.
