While emerging market funds have had a rough patch in 2011 and the first half of 2012 – largely shrugged off by First State and Aberdeen – corporate bond and equity income funds have had a very good run recently.
Mark Dampier (pictured), head of research at Hargreaves Lansdown, says there is a lot of sense in holding popular funds such as Invesco Perpetual Income and M&G Global Dividend, but says certain sectors have been completely overlooked. "In some respects, this ISA season has been pretty boring, with the same old faces at the top," he said.
"You’ve got a broad spread of different sectors up there, with none taking centre-stage."
"The obvious area that has been under-represented once again is natural resources, where we’ve seen big outflows."
"Gold, oil and commodities funds have been absolutely hammered – look at JPM Natural Resources, which is off about 50 per cent."
According to FE data, Neil Gregson’s fund has shrunk from £3bn in April 2011 to £1.48bn at the time of writing.
Dampier says more experienced investors may view this as a buying signal.
"When people get bored and start selling out of areas that have underperformed, that often signals you should be buying," he explained.
"If the risk rally keeps going, then I think that is going to start filtering through to commodities. The same goes for other cheap specialist markets like Russia, which is trading on a P/E [price-to-earnings ratio] of five-times."
"Oil is down about 10 per cent year-to-date and gold hasn’t exactly bombed. All the negativity has come from the mismanagement of money from [resources] companies, which isn’t a structural thing."
"I just wonder whether something will change and send these funds upwards. I really don’t think the gold story is over," he added.
Dampier says he personally owns BlackRock Gold & General and MFM Junior Oils, and that he has no plans to sell them.
According to FE data, these two funds – as well as JPM Natural Resources – have lost money over one, three and five years, severely underperforming the MSCI World index in the process.
Performance of funds vs index over 10yrs
| Name | 1yr returns (%) | 3yr returns (%) | 5yr returns (%) | 10yr returns (%) |
|---|---|---|---|---|
| MSCI World |
17.59 | 30.59 | 54.26 | 150.37 |
| BlackRock Gold & General | -22.7 | -12.3 | -7.95 | 275.37 |
| MFM Junior Oils | -17.6 | -16.97 | -15.19 | N/A |
| JPM Natural Resources | -23.22 | -18.58 | -17.7 | 398.18 |
Source: FE Analytics
BlackRock Gold & General and JPM Natural Resources are still up versus the index over a 10-year period, though.
"The problem you have with holders of these types of funds is that they get impatient," said Dampier. "They see a fund is down, take it out, and put it into something that is going up."
"I suppose you could try and go back into the fund when it’s going up again, but I don’t feel clever enough to do that, to be honest."
Dampier admits that he had similar feelings about Standard Life UK Equity Recovery last year, but thankfully held onto it.
"I did come close to selling it," he said. "It was down about 25 per cent at one point and I got a bit anxious, but now it’s up more than 30 per cent."
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
"You’ve got to be patient when you invest in volatile funds," he added.
Dampier says natural resources funds such as these could be good additions for investors who have still yet to use up their ISA allowance, but advises against last-minute investing in general.
"People leave their ISAs and their SIPP dealings right to the very last minute, and I just don’t understand why," he said.
"We’ve had people ringing up here at five to 12 on the last day, panicking that they’re going to miss it. They’ve had 365 days to invest – why leave it so late?"
"The problem is that you get a lot of people actually missing it altogether, because they start their dealing too late. If anything goes wrong, you’ve got no chance."
"You can’t use the excuse that you’re timing the market, because you can put your allowance into cash and then invest it whenever you want."