Brexit has been the main driver for the worst performing investment trusts of 2016, according to data from FE Analytics, with many mid- and small-cap orientated funds underperforming over the year’s first three quarters. 
Mid- and small-caps tend to be more domestically-focused than their larger peers, with greater dependency on the UK economy.
Following the EU referendum in June, this was the most affected area of the market, largely due to the sudden fall in sterling.
As the below graph shows, the pound tanked against the dollar in the immediate aftermath of the Brexit vote (and is still significantly down), with UK mid-caps falling further than their larger peers.
Performance of indices since the EU referendum
Source: FE Analytics
It has taken more time for medium-sized companies to recover as investors have valued overseas earnings, particularly those denominated in dollars, over UK earnings.
While the fall in sterling has meant exporters in the UK have benefitted, the more domestic mid- and small-caps have not felt this boost, with those importing their goods for sale in the UK hit hardest.
Additionally, this fall in the pound has made exports from UK companies relatively cheaper, giving overseas earners a competitive advantage.
Unsurprisingly therefore, among the worst performers in 2016 to date are the JP Morgan Mid Cap and Schroder UK Mid Cap trusts, which have lost 11.32 per cent and 10.25 per cent respectively.
Performance of funds vs benchmark in 2016
Source: FE Analytics
Both have underperformed their FTSE 250 benchmark, by 7.65 and 6.58 percentage points respectively, as the above graph shows.
The four crown-rated, £230m JP Morgan Mid Cap trust, run by Georgina Brittain and Katen Patel, includes a number of cyclical stocks, including JD Sports, WH Smith and Card Factory among its top 10 holdings.
Cyclical stocks have performed particularly poorly this year, with investors shunning risk in favour of more defensive, growth companies typically found in the large-cap space, due in part to the uncertainty caused by the EU referendum.
The £157m Schroder UK Mid Cap trust run by FE Alpha Manager Andrew Brough, owns similar stocks, including online estate agency Rightmove and Superdry owner SuperGroup.
However, it is worth noting that when mid-caps have performed well, these funds have typically outperformed with JP Morgan in the top quartile of the IT UK All Companies sector in 2013, 2014 and 2015, while the Schroder trust was top quartile in 2012 and 2013.
Small-caps have also been hit by the flight to safer assets by investors following the EU referendum, with six of the 18 worst performers focusing on smaller companies.
Performance of worst performing investment trusts in 2016
Source: FE Analytics
Included among these are the £156m Montanaro UK Smaller Companies trust and the £998m Aberforth Smaller Companies trust.
Much like mid-caps, investors have been unwilling to buy small-caps in the aftermath of the Brexit vote and remained cautious due to the uncertainty of what it will mean for the UK economy.
However, in a low growth world, Miton managing director and fund manager Gervais Williams sees small-caps outperforming over the long term.
“Growth has slowed and it’s a case of get used to it,” he said, adding “The trend is that the organic growth at the smaller end is better than the main market.”
While this may be a valid long-term strategy, in the short term small-caps tend to be more volatile than their larger peers.
The worst performing trust in 2016 so far has been the £113m Marwyn Value Investors trust, a global mid and small cap-focused trust.
The highly concentrated company has a maximum of 10 holdings and aims to hold these for between three and five years.
It has lost 30.24 per cent so far this year, though it has been an up and down prospect since its launch in 2007.
Performance of trust since launch
Source: FE Analytics
While it has returned as much as 152 per cent in a calendar year (back in 2009 following the financial crisis) it has lost as much as 76.59 per cent in a year (2008).
This is, however, the nature of small and mid-cap investing, which tends to be more volatile and more effected by investor sentiment and perception than large caps.