Every Investment Association sector aside from cash and gilts made a loss in the opening three months of 2018, data from FE Analytics shows, as subdued volatility gave way to market turmoil during the first quarter.
Recent years have seen stock markets push ever higher and indices across the globe reach new record highs while the VIX index – often known as Wall Street’s fear gauge – fell to historically low levels in 2017, although many commentators warned that this would not continue.
The opening months of 2018 has proved these warnings correct: markets sold off in February after strong US jobs numbers increased the likelihood of the Federal Reserve lifting interest rates faster than expected while stocks have been hit more recently by the prospect of a global trade war and the fall-out in the tech sector of the Facebook data-harvesting issue.
Some expect these more volatile conditions to persist for some time. IG chief market analyst Chris Beauchamp said: “It is looking increasingly likely that we have a re-run of August 2015 on our hands; equities then had months of volatility to contend with before the rally resumed. With trade wars and the tech scandal weighing on sentiment we may well have more downside to content with.”
Source: FE Analytics
As the table above shows, the only Investment Association sectors where the average fund made money between the start of the year and 28 March were IA UK Gilts, IA Short Term Money Market and IA Money Market – reflecting the two sell-offs that have hit stock markets and subdued sentiment among investors.
Within the IA UK Gilts sector, the strongest performer was Vanguard UK Long Duration Gilt Index with a 1.43 per cent total return. The £311.3m fund tracks the Bloomberg Barclays Capital UK Government 15+ Years Float Adjusted Bond index, which it physically replicates.
All of the other funds to make more than 0.50 per cent are all long-dated portfolios: iShares Over 15 Years Gilts Index (UK), Janus Henderson Inst Long Dated Gilt, Aberdeen Sterling Long Dated Government Bond and Newton Long Gilt.
On an individual fund level, only 6.5 per cent of the 3,724 funds in the Investment Association universe made a positive return over the year to 28 March. Of these 242 funds, just 13 posted a return of more than 5 per cent.
Legg Mason IF Japan Equity, which is managed by Hideo Shiozumi, put in the quarter’s best performing after returning 8.76 per cent. Shiozumi has more than 30 years of experience in running Japanese equities and tends to focus on smaller companies that are linked with the ‘new’ Japanese consumer; his biggest sector allocations are to healthcare, industrials and information technology.
Other Japanese equity funds experiencing a relatively strong quarter include Lindsell Train Japanese Equity and Baillie Gifford Japanese Smaller Companies.
Source: FE Analytics
The rest of the leaderboard is quite a mixed bag of funds, with GAM Star Alpha Technology in second place after making 8.27 per cent. Managed by Mark Hawtin, this €13.4m fund is able to take both long and short positions, which can aid performance in times of market turmoil.
An absolute return fund was in third place, although it is one of the riskier members of the IA Targeted Absolute Return sector. FE Alpha Manager David Crawford’s £266.2m City Financial Absolute Equity fund uses a fundamental long/short strategy that led to returns of 42.59 per cent in 2009 but losses of 10.67 per cent in 2016.
Certain parts of the emerging markets asset class also had a strong quarter, with the likes of Neptune Latin America, Pictet Russian Equities, BNY Mellon Brazil Equity, Baring Russia and Neptune Russia & Greater Russia making some of the Investment Association’s highest returns.
Turning things on their head and FE Analytics shows that the lowest average returns of 2018’s opening three months came from the IA UK Equity Income, which was down 7.03 per cent. It was followed by IA Global Equity Income (down 6.95 per cent) and IA UK All Companies (down 6.63 per cent).
Some of the UK equity funds with losses of more than 10 per cent include VT Cape Wrath Focus, Jupiter Growth & Income, TB Guinness UK Equity Income, Smith & Williamson UK Equity Income, Orbis UK Equity and LF Woodford Equity Income.
The fund at the bottom of the table is Jupiter India, which has lost 15.59 per cent. The likes of JGF-Jupiter India Select, HSBC GIF Indian Equity, Franklin India, Neptune India and GS India Equity Portfolio are not far behind.
Source: FE Analytics
Indian equities have come off their peak since the start of the year, with analysts at Bank of America Merrill Lynch saying that this is down to a combination of higher bond yields, oil price movements, the country’s current account deficit, issues with public sector banks and the long-term capital gains tax on equities.
Natural resources fund, especially gold-focused portfolios also had a weak quarter. BlackRock Gold & General, BlackRock Natural Resources Growth & Income, Smith & Williamson Global Gold & Resources, Allianz Global Agricultural Trends, HC Charteris Gold & Precious Metals, MFM Junior Oils Trust, Investec Enhanced Natural Resources and First State Global Resources are among the names that posted losses of more than 10 per cent.