Energy funds bore the brunt of yesterday’s heavy market falls with one strategy losing around one-third of its value, FE fundinfo data shows, while long-dated gilts rallied hard as investors flocked into safe havens.
Equity markets around the world plummeted yesterday, going through their worst daily trading session since the 2008 global financial crisis.
The FTSE 100 lost 7.69 per cent yesterday as investors worried about the ongoing coronavirus outbreak and an oil price war between Saudi Arabia and Russia.
Markets have recovered somewhat this morning, however, although Trustnet ran the numbers to find out which funds were hit the hardest yesterday.
Source: FE Analytics
Given that the prompt for yesterday’s sell-off was an oil price war – oil was down some 20 per cent after Saudi Arabia said it would ramp up production – it should be little surprise to see that energy funds posted the biggest losses.
Schroder ISF Global Energy sits at the top of the table after losing 32.90 per cent yesterday. This took the fund’s year-to-date losses to just under 55 per cent.
In an update on the move by Saudi Arabia, manager Mark Lacey argued that it could even lead to higher oil prices in the future.
“Ironically, the way to look at the oil market is simple. The longer we stay at current oil prices, the more supply will be removed from the industry. This sets the market up for a period of significant tightening and much higher prices, when we finally enter a period of stable demand and restocking,” he said.
“For this stability, we need the Covid-19 coronavirus to dissipate, industrial activity to restart and industries to destock. In the very short term it is hard to see this happening, but if we look beyond the short term, the upside risk to oil prices is significant.”
BlackRock GF World Energy, GS North America Energy & Energy Infrastructure Equity Portfolio, MFS Meridian Global Energy, Investec Global Energy and MFM Junior Oils Trust.
Many of these funds also made the Investment Association’s largest losses last week, when markets sold off aggressively after the spread of coronavirus in Italy and other countries outside of China.
Country-specific funds that focus on nations that are net exporters of oil also suffered yesterday, as seen by the inclusion of the likes of JPM Emerging Middle East Equity, JPM Russia, Invesco Emerging European (UK), HSBC GIF Brazil Equity and Schroder ISF Latin American on the above list.
In total, around 91 per cent of funds in the Investment Association universe made a loss yesterday.
On a peer group level, the biggest falls were seen by the IA UK Equity Income sector – where the average member was down 5.38 per cent owing to their ownership of oil majors such as BP and Royal Dutch Shell.
Meanwhile, IA UK All Companies lost 5.21 per cent on average, IA Europe Excluding UK was down 4.86 per cent and IA Japanese Smaller Companies shed 4.76 per cent.
Conversely, the average member of the IA UK Gilts sector was up by 3.27 per cent after investors dropped risk assets and looked for safe havens. The only other sectors with positive average returns yesterday were IA UK Index Linked Gilts (up 3.04 per cent) and IA Sterling Corporate Bond (0.09 per cent).
Source: FE Analytics
The above table shows the funds that made the highest returns yesterday and it is immediately apparent how government bonds were pretty much the only place to be during the sell-off.