The 10-year returns of some funds are down by hundreds of percentage points from where they stood just a few months ago, research by Trustnet shows.
The opening months of 2022 have been dominated by a turbulent market, thanks to a rotation away from growth stocks and worries such as surging inflation, higher interest rates, the threat of stagflation and the Russia/Ukraine conflict.
Because of this, there has been some significant losses posted by funds in the Investment Association universe and in this article, Trustnet finds out how these have affected their long-term returns.
Starting at a sector level, the chart below shows the average change in the total return from the decade to the end of 2021 compared with that for the 10 years to 24 May 2022, broken down by Investment Association peer group.
Percentage point change in 10-year total returns in 2022 to date
Source: FE Analytics
The average 10-year return has improved in only four sectors over the five months under consideration.
Both IA Latin America and IA Commodity/Natural Resources have added 20 percentage points to the return because of the recent surge in commodity prices (Latin America is a commodity exporter). The Latin American sector was posting an average loss of 3.3% for the 10 years to the end of 2021 but it’s jumped to a 17.5% return now; in the commodities sector the 10-year return has gone from 104.5% to 124.1%.
IA Infrastructure has risen as investors sought out assets that offer a degree of inflation protection. There’s a 15.4 percentage point increase from the previous 10-year gain of 117.6% to today’s 132.9%.
However, all the other sectors have suffered a decline in their average 10-year return.
The worst hit has been IA Technology and Technology Innovation. A fall from 510.1% at the start of the year to 359.5% now means investors have, on average, seen 150.6 percentage points shaved off their 10-year total return.
Tech stocks have fared poorly in recent months after interest rate hikes by central banks made investors less willing to accept their lofty valuations for future earnings, eating into some of the spectacular gains they have made over the past decade.
IA UK Smaller Companies, IA European Smaller Companies and IA North America have all faced a decline of more than 90 percentage points over the past few months.
Source: FE Analytics
When it comes to individual funds, some eye-watering falls in the 10-year returns of some tech-heavy US growth funds, or US-heavy tech funds can be found. Indeed, of the 25 funds that feature on the table, 19 of them reside in either the IA North America or IA Technology and Technology Innovation peer groups.
The biggest dent in 10-year returns was suffered by Morgan Stanley’s MS INVF US Growth fund. At the end of 2021, its investors were looking at a 10-year return of 812.4% but today the figure in front of them is 292.8% – a decline of almost 520 percentage points.
As its name suggests, the fund follows the growth style of investing – or buying companies that are have the potential to grow faster than the market. While this approach led the market over the past decade, when interest rates were at historic lows, it has fallen out of favour this year as rates have started to rise.
MS INVF US Growth is siting on a loss of 53.6% over 2022 so far, as a heavy weighting to tech stocks (they comprise around half of the portfolio) has had a significnat impact. It’s a similar story with many of the other funds included in the above table.
Baillie Gifford American, MS INVF US Advantage, Baillie Gifford Global Discovery, iShares NASDAQ 100 UCITS ETF, GAM Star Disruptive Growth, L&G Global Technology Index Trust and T. Rowe Price US Large Cap Growth Equity are all examples of funds that made strong long-term returns thanks to tech-heavy growth-biased portfolios but have watched these be eroded by 2022’s market rotation.
Source: FE Analytics
Above are the funds that have posted the largest positive changes in their 10-year returns over recent months. However, it’s instantly clear that rises in long-term numbers have been on a much smaller scale than the falls.
As would be expected, many invest in either commodities stocks or Latin American equities, given the strong performance in these parts of the market thanks to the surge in commodity prices.
Energy funds are particularly well-represented - SSGA SPDR MSCI World Energy UCITS ETF, SSGA SPDR MSCI Europe Energy UCITS ETF, BlackRock BGF World Energy, iShares Oil & Gas Exploration & Production UCITS ETF and Guinness Global Energy can be found in the table.
This is down to the jump in the price of oil and gas in recent months. While energy commodities have been rising for some time because of rising demand and supply bottlenecks, the sanctions against Russia – which is a major energy exporter – created even more upwards price pressure.
Rising agricultural commodity prices, caused by Ukraine’s status as a food exporter, is reflected in funds such as iShares Agribusiness UCITS ETF and Barings Global Agriculture reporting much higher 10-year returns.