Real estate, energy, utilities, telecoms and consumer staples are the MSCI World sectors that have posted the lowest returns so far this year, according to data from FE Analytics.
Conversely, information technology, consumer discretionary, healthcare and financials have had the best run since the start of 2018.
While some experts have claimed that it is too early to gauge performance, others argue that recent market moves and concerns over faster-than-anticipated interest rate hikes affect sectors with greater sensitivity to monetary policy changes.
After posting a 36.78 per cent total return in 2017, the MSCI World Information Technology index has continued to perform strongly this year.
As the below chart shows, the sector comfortably outperformed other sectors last year 2017, driven by blue-chip names such as Apple, Microsoft, Facebook or Alphabet.
Telecoms and energy were the industries that had the poorest 2017, with a 1.15 return by the end of December, in what was a broadly positive year for markets. The utilities and real estate sectors were the next worst performers, returning 9.63 per cent and 12.01 per cent respectively.
Performance of MSCI World sectors in 2017
Source: FE Analytics
Although the current economic backdrop has not differed much from last year, there has been an uptick in volatility following concerns over inflation and the potential for rate hikes.
As such, the worst performer of the year, so far, is the real state sector, which occupies the bottom position on the list, with a 6.16 per cent loss, so far this year.
The next worst-performing sector is energy, which is down by 5.93 per cent, while telecoms, utilities and consumer staples are down by 5.21 per cent, 5.50 per cent and 4.02 per cent respectively, as shown in the following chart.
Current levels of growth have seen defensive companies, or those where demands for goods and services remains stable during economic turmoil lag behind more cyclical stocks.
James Smith, manager of the Premier Global Infrastructure Income fund, believes those companies seen as ‘bond proxies’ – equities that have safer and more predictable returns – may underperform amid recent worries over a rise in interest rates.
He said: “One of the reasons that utility and infrastructure companies have underperformed is because they tend to be viewed as bond proxies by many investors. This can lead to them being sold when interest rates are increasing.”
However, Smith points out that this “ignores the regulatory models of these companies, which act to pass higher interest rates into higher tariffs over time”.
“In essence, the allowed returns of these companies are expected to be adjusted upwards over time, offsetting the increased discounting effect of higher rates on valuations,” he added.
Performance of MSCI World sectors YTD
Source: FE Analytics
According to Ben Barringer, equity research analyst, Quilter Cheviot Investment Management, industries such as telecoms and consumer staples are being impacted by the rising bond yields.
He explained: “Worries over rising inflation has spooked the markets in recent weeks, pushing up bond yields and triggering a sell‐off in shares, as investors speculate how fast central banks will tighten monetary policy.
“With the global economy growing strong, an unwinding of quantitative easing [QE] and steady rises in interest rates from the central banks look likely, however the pace of rises is the key focus,” he explained.
For Barringer, rising bond yields continue to maintain pressure on the share prices of defensive industries, such as telecoms.
“The telecoms industry had a poor 2017 and has started 2018 where it left off last year,” he added. “It is competitive, lacks pricing power and has high capital expenditure compared to the other better performing sectors such as technology and consumer discretionary,” he said.
As such, Barringer believes it’s unlikely that there will be an improvement in the sector “anytime soon”. “The telecoms industry will continue to have a high capital expenditure, and bond yields are expected to remain high,” he said.
According to the analyst, the consumer staples industry has also been impacted by the rising bond yields, as well as by weaker currency trends.
“Consumer staples that normally achieve consistent growth and pay higher than average dividends are being treated as bond proxies by investors worried about the continuing normalisation of monetary policy by the major central banks,” he said.
However, he believes the derating of the sector may have gone too far as long as we haven’t yet seen “a big inflation spike”.
“Against this negative headwind we are beginning to see faster economic growth, particularly in emerging economies which have been the main driver of volume growth for most global consumer names,” he added.
“In addition, wage growth is beginning to pick up on both sides of the Atlantic which should improve pricing power for the better positioned companies.” 
Another sector that has underperformed so far this year is energy, which has lost almost six per cent. It also was one of the worst performers in 2017.
Richard Robinson (pictured), manager of the Ashburton Global Energy fund, said potential bear points regarding poor performance of the sector are focused on short term factors such as “seasonality” and “the build-up of net longs by non-commercial buyers”.
He said: “Although non-commercial longs are at a very high level, this is something we might expect as the curve is in steep backwardation, keeping the commercial hedging to a low.
“Also, note that the representation of the energy sector is within 0.25 percentage points off its all-time lowest weighting within the S&P, meaning that long-only funds are still historically holding very little in the energy market.”
“Although the sector is facing some seasonal headwinds, over the medium to long term, we believe strengthening fundamentals will help the energy sector to be a relative outperforming sector,” Robinson said.
With regards to valuations, Robinson said energy stocks currently look cheap, particularly given the strong fundamental support of the oil price over the coming months and years.
“The earnings trend is now positive, expectations are being moved higher and are expected to grow the most of any sector in 2018,” he added.
Performance of MSCI World/Real Estate over 3yrs
Source: FE Analytics
However, the MSCI sub-sector that has had the poorest start to the year is real estate. The sector – which has large weightings to real estate investment trusts (REITs) – has lost 6.16 per cent so far this year, after generating a total return of 12.01 per cent in 2017.
Thomas Bohjalian, portfolio manager for Cohen & Steers’ real estate securities portfolios, puts recent underperformance down to a ‘perfect storm’ of factors such as unusually high interest rate sensitivity that he believes have contributed to the negative sentiment towards the sector.
“Since the start of 2015, REITs have been among the most out‐of‐favour segments of the market, delivering flat returns even while growing cash flows at 7-8 per cent per year,” he explained.
“REITs have pulled back sharply in early 2018, trailing the broad market by 12 per cent through 15 February, bringing their one‐year underperformance to 24 per cent.”
Bohjalian added that REITs have also fallen behind private real estate, compared with a 3 per cent annual return premium to the private market over the past 30 years.
That said, the manager argued that "an opportunity is emerging" in the asset classs.
“Despite a generally healthy real estate market, REITs have been held back amid heightened short-term sensitivity to interest rates," he said.
"While rates could remain a factor, we see the recent pullback as an opportunity to build allocations to REITs: they’re looking attractive next to stocks, bonds and private real estate, equity correlations are at a 16-year low, and better fundamentals may be on the horizon”