This quarterly series is usually called ‘The charts showing what you should have bought’ but following the heavy losses in many parts of the market, this edition has been retitled ‘The charts that show what you should have avoided’. 
No-one will have been able to avoid the fact that the coronavirus outbreak has led to widespread turmoil, with more than a million cases detected worldwide and tens of thousands dying from the illness.
As well as the terrible human cost, the coronavirus pandemic has shaken financial markets to their very core. Below, we look how 2020’s first quarter played out from a range of viewpoints.
Asset classes
The chart below shows just how bad a quarter was had by global equities, represented here by the MSCI AC World index. The coronavirus pandemic and resultant lockdowns in many countries mean that the world is facing a recession and stock markets tanked on the back of this realisation.
But the 16 per cent fall in global equities looks minor when compared with near 60 per cent drop in the oil price. Oil is trading at around $20 a barrel, thanks to a price war between Saudi Arabia and Russia combined with the demand-smothering effects of the coronavirus crisis.
Source: FinXL
It shouldn’t be too surprising, therefore, that the only parts of the market to make positive returns over 2020’s first quarter were safe havens.
Gold rallied 11.66 per cent but at points was falling at the same time as equities. In mid-March, when gold was down before rising again, AJ Bell investment director Russ Mould said: “One common theory to explain gold’s slump is that investors are looking to meet redemptions or margin calls and the precious metal is a logical port of call, especially as many investors will have a profit to take and the gold market is relatively liquid. This makes sense, especially as the same happened to gold when all hell broke loose in 2008.”
Government bonds also rose over the quarter as investors sought out areas to protect portfolios and central banks around the world embarked on emergency interest rate cuts and massive quantitative easing programmes to protect economies against the fallout of coronavirus.
Geographies
The following chart shows how losses in global stock markets were seen in pretty much every geographical location, but some felt the pain more than others.
The UK bore the brunt of the sell-off, putting to bed hope that the country would enjoy a Brexit bounce after years of being avoided by investors. The heavy presence of oil & gas companies in the UK market added to coronavirus woes as the oil price plummeted over the quarter.
Source: FinXL
Even though the coronavirus originated in China, emerging markets performed better than both the UK and Europe. This was largely down to the resilience of Chinese equities, which make up more than one-third of the MSCI Emerging Markets index but were down just 4 per cent over the quarter.
Not all emerging markets fared as well, however, with the MSCI Brazil index tanking some 46 per cent over the three-month period.
Investment style
The next chart shows just how badly the value investment style performed in the first quarter. The style has lagged for much of the past decade and the coronavirus sell-off has failed to act as a catalyst for its revival.
The MSCI ACWI Value index dropped more than 20 per cent over the first three months of 2020, compared with losses of less than 10 per cent for its growth, quality and momentum counterparts.
Source: FinXL
Fundsmith Equity manager Terry Smith, known for his quality-growth approach, recently said: “I was immensely sceptical of the view that so-called value stocks could protect you in a downturn. I have never been a believer in the philosophy that so-called ‘value’ investments would perform well or protect your investment in an economic and market downturn.
“Shares in companies that are lowly rated are so mostly for good reasons. Because their businesses are heavily cyclical, highly leveraged, they have poor returns on capital and/or they face other structural or management issues. It doesn’t sound like a combination likely to protect the business and your investment in difficult times, and so it has proven thus far.”
MSCI industries
Turning to the various industries in the global stock market, energy companies have been the hardest hit by the first quarter’s turbulent conditions with the MSCI ACWI/Energy down 40 per cent as the oil price plummeted.
Other sectors highly geared into the health of the economy, such as financials, industrials and materials, also fell hard.
Source: FinXL
The ‘winners’ – in a relative sense, given losses were seen across the board – were more defensive areas of the market. The healthcare index, for example, kept its losses over the quarter to just above 5 per cent.
Marija Veitmane, multi asset class research senior strategist at State Street Global Markets, said: “We find that the safest stocks right now are those with the strongest underlying fundamentals – stocks that are in a stronger position to defend their earnings. Earnings forecasts have fallen, as analysts try to factor in the impact of the virus on the economy. But have they adjusted enough?
“Whilst no one can answer this question yet, media sentiment remains negative on upcoming earnings leading to a possible earnings disappointment. However, with strong cash flow generation at a premium, healthcare, consumer staples and IT identify as the safest options right now, whilst financials and utilities remain at risk.”
FTSE market caps
We’ve already seen how UK equities were the worst performers on a regional basis, but the chart below illustrates the fortunes of UK companies of different sizes.
The FTSE 100 is the most closely followed index in the UK and its falls have been making almost daily headlines, with some very heavy losses being incurred followed by the very occasional ‘mega-rally’. But the FTSE 100 has been the part of the market that has held up best.
Source: FinXL
The mid- and small-cap parts of the market suffered much higher losses as the extreme risk-off sentiment that dominated the first quarter – and especially in March – prompted them to pull back from these areas.
Fund sector performance
Looking at how all of the above affected the various Investment Association sectors, we see that IA UK Smaller Companies was the worst performer of the quarter, followed closely by IA UK All Companies and IA UK Equity Income.
Ryan Hughes, head of active portfolios at AJ Bell, said: “UK deep value along with mid- and small-cap funds took a real hammering.
“The value space was an area that really struggled over the quarter as those companies that were already perceived by the market to have some degree of problems were punished even further with the likes of Alastair Mundy at Investec (Ninety One) and Andy Brough at Schroders both making an appearance in the biggest losers of the first quarter.”
Source: FinXL
When it comes to bonds, IA UK Gilts and IA UK Index Linked Gilts were the only sectors in the Investment Association universe to make positive returns during the quarter.
“At an overall level, long duration bonds have been the place to be as government bonds rallied hard amid the collapse in interest rates,” Hughes added. “The Allianz Strategic Bond fund showed that active management can prosper during times of turmoil as the highly regarded Mike Riddell managed to deliver good returns in the strategic bond space.”
Source: FinXL
In the multi-asset and ‘other’ part of the Investment Association universe, IA Property Other and IA Specialist handed investors the heaviest losses.
Among specialist funds, it was energy and Latin American or Brazilian equity strategies that fared the worst. The worst performer overall was Schroder ISF Global Energy, with a fall of 60 per cent.
Source: FinXL
And on the fact that the average IA UK Direct Property was down just 1.19 per cent, Willis Owen head of personal investing Adrian Lowcock said: “Given that many funds have been suspended in March because the independent valuers could no longer accurately value the properties, the performance figures are unlikely to be accurate and should effectively be ignored.
“Indeed, when they reopen the sector will likely face a double blow from investors who were locked in redeeming and from tumbling property values.”