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The giant funds heading for a loss-making 2015

07 December 2015

FE Trustnet runs through the funds that have attracted a large pool of assets over recent years, but look like they will lose their investors money over the course of 2015.

By Gary Jackson,

Editor, FE Trustnet

Aberdeen Global Emerging Markets Equity, M&G Global Dividend and Stewart Investors Asia Pacific Leaders are among the giant funds that are sitting on losses for the year so far, with a matter of weeks to go before the results for 2015 are set in stone.

The past 11 months have proved to be rather challenging ones for investors, as concerns such as the timing of interest rate hikes, plunging commodity prices and slowing economic growth in China have damaged sentiment.

This has translated into losses for some parts of the funds universe, with our data showing that the average fund in the IA Global Emerging Markets, IA Asia Pacific Excluding Japan and IA Global Bonds are among those down over the year so far.

Some 1,010 funds from the 3,478 in the Investment Association universe are in negative territory over 2015 to date and 117 of these have assets of more than £1bn. What’s more, 30 are larger than £3bn in size and their losses are shown below.

 

Source: FE Analytics

As the table shows, Aberdeen Global Asia Pacific Equity – which is managed by Asian equity veteran Hugh Young and his Singapore-based team – tops 2015-to-date’s losses with an 11.67 per cent fall.

This ranks it in the bottom decile of the IA Asia Pacific ex Japan sector, where the average loss has been 4.95 per cent; its MSCI AC Asia Pacific ex Japan index benchmark has fallen 5.18 per cent this year.

Asian equities were hit hard by the China-induced sell-off that peaked on the ‘Black Monday’ crash of 24 August, which itself was sparked by the country’s decision to allow its currency to devalue against the dollar.

But it’s not only the past year that has been difficult for the fund. FE Analytics shows it is bottom decile over three years and ninth decile over five years, as Aberdeen’s quality-growth style has struggled in the difficult market conditions.

The setback to Aberdeen’s trademark quality-growth approach also means that the £4.4bn Aberdeen Global Emerging Markets Equity fund, which is run by global head of equities Devan Kaloo and his emerging market team, appears on the list in third place with a 9.66 per cent fall.

However, this fund is still outperforming over longer time frames – over five years, it has lost 9.53 per cent compared with a 13.61 per cent fall in its MSCI Emerging Markets benchmark and a 15.76 per cent average loss from the IA Global Emerging Markets sector.

The second fund on the list, SKAGEN KonTiki, resides in the IA Global sector but is effectively a global emerging markets portfolio, as its mandate is to offer exposure to companies that “have operations in or focused on emerging markets”. It is down 11.05 per cent this year.


 

Unlike the Aberdeen fund, it takes a value approach to investing and has outperformed the average global emerging markets portfolio by a narrow margin over three and five years and by a significant margin over 10 years (a 112.25 per cent total return against the sector’s 66.35 per cent).

Performance of funds versus sector and index over 2015

 

Source: FE Analytics

Next up are two of M&G’s flagship offerings – Stuart Rhodes’ £6.4bn M&G Global Dividend fund and Tom Dobell’s £3.9bn M&G Recovery fund.

M&G Global Dividend, which sits in the IA Global sector but has an equity income approach, has made the larger loss of the two with a 6.79 per cent fall. The fund is currently sitting in the sector’s fourth quartile on one, three and five-year views.

Earlier this year, Rhodes told FE Trustnet that there have been a number of reasons for that underperformance, with most of team relating to his investment style. A major one was his decision to increase exposure to the energy and basic materials sectors due to the attractive valuations on offer after last year’s commodity price falls.

These areas of the market have suffered over 2015, but the manager argues that his focus on dividend growth when choosing to invest in such value stocks could pay off in the long run: “Dividend growth from the fund’s underlying holdings remains encouraging with the majority continuing to deliver dividend increases in the region of 5 per cent to 15 per cent.”

“While these growth rates are in line with previous years, there has been a significant shift in valuations across the market with the best investment opportunities now being among cyclicals rather than defensives in our view.”

Likewise, M&G Recovery has seen its long-term track record of outperformance tarnished by a run of weak returns. It has lost 4.14 per cent in 2015.

The fund is also fourth quartile over one, three and five years. Until recently, it was possible to highlight its outperformance over 10 years but it is now lagging both the IA UK All Companies sector and the FTSE All Share over this time frame.


 

Performance of fund vs sector and index over 10yrs

 

Source: FE Analytics

While its underperformance has lasted for some time now, it’s important to note that Dobell has a deep-value approach to investing, which has generally been very out-of-favour in the liquidity-fuelled rally of recent years.

With some expecting value to start to outperform quality, a number of analysts and multi-managers continue to support the fund as one that could do well if this were to come about.

Four of the funds on the list are from the bond sectors, focusing on higher risk areas such as high yield and emerging market debt. These have found it harder to make progress amid the higher levels of volatility that have crept into markets this year.

The final fund is Angus Tulloch and David Gait’s Stewart Investors Asia Pacific Leaders, which was until recently known as First State Asia Pacific Leaders. Like the Aberdeen fund, it has been hit by the China-centred volatility but has managed to perform better than both the index and its average peer over 2015 by losing just 2.09 per cent.

The fund’s long-term track record is also one of the best in its sector, with the portfolio currently being the third highest returning over five and 10 years. However, it was recently announced that Tulloch will step back from day-to-day management of the fund in 2016.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.