Most equity funds are in negative territory for 2020 so far after renewed coronavirus worries sparked a sell-off in global stock markets, with Japan and the UK being among the worst hit.
Equities across the globe tanked on Monday when a surge in coronavirus cases outside of China prompted worries that outbreak could eventually become a pandemic. Stock markets were down during Tuesday’s trading session as well.
While equities have stumbled in recent days, classic safe havens such as government bonds and gold have been more in favour as investors seek out areas of perceived safety amid the uncertainty.
Against this backdrop, funds in the Investment Association universe have struggled to make progress. FE Analytics shows that 1,481 funds – or 36.7 per cent of the 4,035 in the universe – were sitting on a loss for 2020 to date (end of 24 February). This will have increased after yesterday's session.
Source: FE Analytics. Data as at 24 Feb 2020
As the table above shows, the heaviest losses have been felt in the IA Japanese Smaller Companies sector – seen as one of the riskier peer groups – where the average member is down 9.88 per cent.
The IA Japan sector is in second place after an average loss of almost 5 per cent, but the two main UK equity peers of IA UK Equity Income and IA UK All Companies are not far behind. In fact, the average fund in these two peer groups has fallen harder than those investing in Asian equities, which are at the epicentre of the coronavirus outbreak.
Not every equity sector has lost money, however, with the average return for IA Technology & Telecommunications standing at 6.57 per cent while IA North America has made 3.92 per cent. Even the average Chinese equity strategy is up 0.95 per cent.
Looking closer at the different asset classes in the universe, 56.6 per cent of the 1,760 funds in Investment Association’s equity peer groups have made a loss over 2020 so far. Some 27.9 per cent of funds in the four multi-asset sectors and the IA Volatility Managed sector have also lost money.
As would be expected, bonds have held up as stocks struggled with the average member of the IA UK Index Linked Gilts sector making a 7.69 per cent return. Only 7.2 per cent of the funds in the fixed income sectors are down, meaning they have held up better than the absolute return sector, where 21.4 per cent of members are in negative territory.
Source: FE Analytics. Data as at 24 Feb 2020
The table above shows the 25 funds that have made the biggest losses (in sterling total return) since the start of 2020.
Schroder ISF Global Energy sits at the very top with a fall of 15.75 per cent, but many other energy funds can be seen including MFM Junior Oils Trust, TB Guinness Global Energy and BlackRock GF World Energy.
Commodities, especially oil, have fallen in recent months as investors worry about the impact that coronavirus will have on the global economy if it continues to spread outside of China.
While the 2002-2003 SARS outbreak shaved around 0.1 percentage point off global GDP, many fear that the increased size of China and a more interconnected economy means the current outbreak has the potential to be more damaging.
There’s an absolute return fund in second place: Jupiter Absolute Return, which is down 13.08 per cent. Manager James Clunie recently explained why January was the £800m fund’s worst ever month, as coronavirus concerns lead to growth stocks (which the manager is shorting) outperforming and value (where he is long) underperforming.
Japanese equity funds are well represented on the list, as noted previously.
Of the UK funds on the above list, many have a value tilt – such as ASI UK Recovery Equity, UBS UK Equity Income and Liontrust UK Mid Cap. The value style has underperformed for a number of years and has come under renewed pressure as investors fret about the health of the global economy.
Source: FE Analytics. Data as at 24 Feb 2020
Of course, not every fund has lost money and the best returns of the year-to-date have come from one that focuses on China, where the coronavirus outbreak originated.
Matthews China Small Companies is up close to 18 per cent. It is underweight more cyclical areas such as energy, materials and real estate while running big overweight in more growth-focused or defensive areas like healthcare, information technology and consumer staples.
In keeping with this trend for quality or growth assets to hold up amid the concerns over coronavirus, we also see funds such as Baillie Gifford American, Morgan Stanley US Growth and Polar Capital Global Technology among those making double-digit returns.
Gold has also done well (BlackRock Gold & General, ES Gold and Precious Metals), reflecting its ‘safe haven’ status.