The last quarter of 2018 offered little comfort to investors bruised by the rest of year after markets sold off in earnest from its very start. 
Many investors were left nursing losses by the end of 2018 and much of this came from the year’s final three months when issues such as monetary tightening and trade tensions sparked a significant sell-off.
Below, FE Trustnet looks at 2018’s fourth quarter from a range of viewpoints to show where losses and (scarce) returns were made.
Asset classes
The first chart in this article highlights just how turbulent the fourth quarter was in markets. Volatility – represented here by the VIX (the so-called ‘fear gauge’ of Wall Street) – spiked as global equity markets sold off; the MSCI AC World was down 10.67 per cent.
Performance of indices over Q4 2018
Source: FE Analytics
Volatility had fallen to historic lows in 2017 as markets ground upwards against a relatively calm backdrop. But it returned in force over 2018 and surged in the final three months of the year as markets went through a correction.
Government and corporate bonds posted small gains in the fourth quarter as did gold. The yellow metal is a classic safe haven and captured inflows as investor sentiment tanked elsewhere.
Geographies
Against this backdrop, no region of the global equity market posted a positive return. Japan fell hardest, in sterling terms, with a 12.86 per cent slide over the three-month period.
The market downturn, which started in October and worsened over the bulk of December, was prompted by numerous issues. These include the ongoing trade war between the US and China, the Federal Reserve’s monetary tightening programme and Donald Trump’s displeasure with it, the US government shutdown and weaker growth in China.
Performance of regions over Q4 2018
Source: FE Analytics
The US, which has led the bull run since the global financial crisis, had another challenging quarter with the S&P 500 falling 11.59 per cent and contributing to their worst year in decade.
The Dow Jones and S&P 500 dropped more than 2.5 per cent on Christmas Eve, which was their worst ever pre-holidays performance thanks to the government shutdown and the continuing trade tensions. But they rallied in the final days of 2018, with the Dow gaining 1,000 points in a single session – the biggest points gain in its history.
Investment style
It should be little surprise that all the main investment styles resulted in a loss for the three months to the end of December 2018.
Performance of styles over Q4 2018
Source: FE Analytics
The momentum style was the only one that worked during the quarter, with investors aiming to capitalise on existing market trends making around 1 per cent (as represented by the MSCI ACWI Momentum index).
Value outperformed growth across the quarter but still made a loss of 8.61 per cent, against the growth style’s 12.62 per cent fall.
Industries
When it comes to the sectors in the UK stock market, it is clear that investors are concerned by growth and the impact of Brexit on the economy.
Industrials were the worst performing group of shares in 2018’s fourth quarter with a 16.97 per cent fall. Other cyclical sectors such as financial services and consumer goods performed poorly.
Performance of FTSE industries over Q4 2018
Source: FE Analytics
The FTSE All Share Oil & Gas index was down 13.48 per cent by the end of the quarter. This came after a sharp drop in oil price because of oversupply and concerns about slowing demand for the commodity.
Telecommunications stocks were the best performers of the quarter after falling just 1.49 per cent, while other defensive areas like healthcare and utilities also held up relatively well.
Equity funds
The torrid conditions of the quarter meant that all of the Investment Association’s equity fund sectors made a loss, on average.
The biggest fall came from the IA UK Smaller Companies peer group, where the average member was down 15.79 per cent. MFM Techinvest Special Situations came off worse after dropping 23.57 per cent while MI Downing UK Micro-Cap Growth’s 10.01 per cent loss was the best result from the sector.
Performance of sectors over Q4 2018
Source: FE Analytics
IA Global Emerging Markets saw the best average return after falling 5.04 per cent. Its worst performer was RWC Global Emerging Markets (down 10.95 per cent) but two members were positive: First State Global Emerging Markets Focus (up 2.57 per cent) and MI Somerset Emerging Markets Small Cap (up 0.28 per cent).
Bond funds
Fixed income was one part of the market where investors stood a chance of making money in the final quarter of 2018 as money flowed out of equities and into areas of perceived safety.
The average fund in the IA UK Index Linked Gilts sector made 1.92 per cent. The three best performers here were Baillie Gifford Active Index-Linked Gilt Investment (up 3.11 per cent), Threadneedle UK Index Linked (3 per cent) and Scottish Widows UK Index Linked Tracker (2.99 per cent).
Performance of sectors over Q4 2018
Source: FE Analytics
The IA Global Emerging Markets Bond sector came close behind with an average return of 1.82 per cent. Its best performers were Capital Group Emerging Markets Local Currency Debt (5.10 per cent), Nomura Emerging Market Local Currency Debt (5.08 per cent) and Barclays GlobalAccess Emerging Market Local Currency Debt (4.91 per cent).
IA Sterling High Yield put in the worst performance with an average loss of 4.02 per cent, reflecting the asset class’ high correlation to equities. Every member of sector made negative returns, with Lord Abbett High Yield at the bottom of the table with a 6.23 per cent fall.
Multi-asset and specialist funds
Given that the global technology sector was at the epicentre of the sell-off that started in October, the average fund in the IA Technology & Telecommunications peer group had the worst fourth quarter.
This sector was down by 11.24 per cent, with the biggest falls coming from Janus Henderson Global Technology (down 15.83 per cent), L&G Global Technology Index Trust (down 15.63 per cent) and AXA Framlington Global Technology (down 14.55 per cent).
Performance of sectors over Q4 2018
Source: FE Analytics
The IA Targeted Absolute Return sector, whose members are designed to protect investor capital during rough periods, was on top of this group with an average loss of 2.34 per cent.
The sector is home to a diverse range of fund, however, so there were some extremes in performance from its more volatile members. City Financial Absolute Equity, for example, made a 12.57 per cent return during the quarter but Polar Capital UK Absolute Equity lost 11.34 per cent.