An unanticipated challenge for markets resulted in some dire losses for fund managers in March as the coronavirus Covid-19 spread around the world and resulted in a number of economies going into lockdown.
The spread of Covid-19 had a severe impact on global markets which recorded falls in line with the worst experienced during the global financial crisis of 2008.
While the response has been robust – with governments around the world announcing substantial fiscal and monetary stimulus packages – it has not yet been enough to calm investor nerves.
“March was one of the most extraordinary months ever. The ‘Great Financial Crisis’ seems tame by comparison,” said Ben Yearsley, director at Fairview Investing. “The collapse in equity prices has brought in one of the quickest bear markets in history.
“However, the speed and size of policy response from governments and central banks has been impressive – it took the Fed three months in the GFC to do what it has done now in two weeks.”
As such, all types of strategies struggled as investors turned more risk-off seeking safety in cash and other ‘safe havens’ such as government bonds.
Source: FE Analytics
Indeed, the only sector to post a positive return for the month was IA UK Gilts where the average member made a total return of 1.60 per cent
Other sectors such as IA UK Index Linked Gilts and IA Global Bonds also performed well recording small average losses of 2.81 per cent and 3.62 per cent.
Japanese equity strategies also appeared among the best performers with small losses as the benchmark Topix index recorded only small falls and sterling devalued against the yen.
Source: FE Analytics
Nevertheless, when we look at the bottom of the performance table the scale of losses becomes more apparent.
UK equity strategies were the worst performers of March with all three main sectors rooted to the bottom of the table.
IA UK Smaller Companies – seen as a purer play on the domestic economy – was the worst performing peer group, with an average loss of 22.56 per cent.
Elsewhere the average IA UK All Companies fund was down by 18.51 per cent and the IA UK Equity Income peer lost 18.42 per cent.
It came as sterling weakened against most major currencies and the FTSE All Share recorded its worst monthly showing in recent memory.
Elsewhere, riskier small-cap strategies across different geographies struggled in a more risk-off environment with the IA European Smaller Companies sector down 17.22 per cent and the average IA North American Smaller Companies peer losing 16.70 per cent.
While the sector results were mostly reflected in individual fund performance there were also some interesting trends.
At the bottom of the pile was the Schroder ISF Global Energy fund, which as March’s worst performing fund making a loss of 44.64 per cent.
Source: FE Analytics
There were a number of energy strategies at the bottom of the table given the ongoing oil price war which was sparked at the beginning of the month as Saudi Arabia upped production having failed to convince Russian authorities to keep limits in place and the cost of oil higher.
Another notable trend was the prevalence of several Latin American equity strategies at the foot of the table.
It came as the Brazilian market – the largest constituent in Latin American benchmark indices – the Bovespa recorded a 37.19 per cent loss, in sterling terms.
Brazil had been suffering economically coming into 2020 as its government struggled to pass economic reforms, weaknesses only exacerbated by this intense time in markets.
As such, Brazilian equity strategies HSBC GIF Brazil Equity, JPM Brazil Equity and BNY Mellon Brazil Equity were among the worst performers, while more generalist Latin American strategies Janus Henderson Latin American, Liontrust Latin America, and Invesco Latin American (UK) also featured.
There were also a number of UK small- and mid-cap focused strategies at the foot of the table, chief among them was the £2.2m Elite Webb Capital Smaller Companies Income & Growth fund which was down by 35.15 per cent.
It wasn’t bad news for everybody, however.
At the top of the fund performance table was the FP Argonaut Absolute Return fund making the highest returns with a gain of 15 per cent.
Source: FE Analytics
Managed by FE fundinfo Alpha Manager Barry Norris and deputy manager Greg Bennett the £22.3m fund aims to post positive returns over a rolling three-year period, regardless of market conditions.
Whilst this is their aim absolute return funds have been somewhat unloved during the equities rally where they’ve trailed in performance – which they’re supposed to. Indeed these ‘rainy day’ strategies may come into their own during this intense time for markets.
Another standout performer was the Lindsell Train Japanese Equity fund, which was up by 10.5 per cent.
Managed by FE fundinfo Alpha Manager Michael Lindsell five Crown rated fund has been consistently top quartile across all time frames, either the first or second best performing fund in the IA Japan sector.
Other top performing strategies included those investing in defensive or low volatility strategies.