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The fund sectors where no-one is making money in 2018

25 October 2018

FE Trustnet highlights the sectors where every fund has made a loss year-to-date as well as those that have seen every member make money.

By Gary Jackson,

Editor, FE Trustnet

There are five Investment Association sectors where every fund has made a loss over 2018 so far, research by FE Trustnet shows, while another 12 peer groups have less than 10 per cent of their members in the black. 

This year has presented investors with some challenging conditions to navigate as markets continue to look expensive and more commentators started to talk about how to prepare for the end of the cycle.

Issues such as a potential trade war between the US and China, as well as its other major trading partners, moves by the Federal Reserve to raise interest rates and signs of slowing global growth have given investors cause for concern.

Things came to a head in the early part of October, when global markets were gripped by an intense sell-off following a surprise increase in bond yields. This sell-off – the second of the year – has left many parts of the market nursing losses.

Performance of indices over 2018

 

Source: FE Analytics

In light of this, FE Trustnet examined the returns of every fund in the Investment Association universe, then worked out what proportion of each sector had managed to make a total return of more than 0 per cent between the start of 2018 and 24 October.

As the table below shows, five peer groups – IA Asia Pacific Excluding Japan, IA Asia Pacific Including Japan, IA China/Greater China, IA UK Gilts and IA UK Index Linked Gilts – do not have a single member making money this year.

This is in stark contrast to 2017, when our data shows that there were no sectors where every fund failed to generate positive returns. The worst sector last year was IA Global Bonds, although two-thirds of its members still made money.

The IA Asia Pacific Excluding Japan sector is the largest of the five struggling in 2018 with 103 funds; last year, every one of its members was in positive territory. The worst performance this year has come from JOHCM Asia ex Japan with its 22.68 per cent loss, while Fidelity Asian Dividend is at the top of the table after shedding 1.21 per cent.


Like the other Asian sector and Chinese equity peer group, IA Asia Pacific Excluding Japan has suffered from trade war rhetoric coming out of the Trump administration, despite a relatively rosy corporate backdrop.

Andrew Swan, head of Asian and global emerging market equities at BlackRock, said: “So far this year in Asia, we have seen a very robust environment in terms of corporate profitability and economic growth, but a very different outcome on equities where there have been declines of over 20 per cent.

“Fears on future growth have dominated share prices. There is an expectation that while growth has been good, it is going to be short-lived and the big headwinds are getting closer and closer.

 

Source: FE Analytics

“Those big headwinds are perceived to be tightening by the Fed, China’s own deleveraging process, which started almost 12 months ago, and the trade war, which is now the most dominant. Until recently, there had been no effect at the corporate level from these issues, in fact growth has surprised on the upside, particularly corporate profit growth.

“However, we are starting to see an impact on sentiment at the corporate level and at the consumer level in certain pockets across Asia.”

Swan added that the challenge for Asian investors is that the dialogue appears to have shifted from being about simple trade matters to a conversation about economic and broader security between China and the US.

He noted that the rhetoric around this is “ramping up” and it is difficult to understand how much of Trump’s noise around economic security is based on reality. That said, domestic Chinese investors have become the most bearish with the “the real de-rating” being seen in this part of the market.


“Investors are very worried about growth, so the ‘surprise’ could well be that growth doesn’t turn out to be as negative as the market fears,” Swan concluded. “What we do know is that the valuations are very cheap and while the earnings may start to slow down, markets are discounting a substantial correction already.”

The IA Global Emerging Markets sector has also had a poor showing this year, also for the above issues. Only one fund, or 1 per cent of its members, is on a positive return for 2018-to-date: Lazard Mena – a Middle East & North Africa-focused fund – which is up by 3.2 per cent thanks to its lack of exposure to Asia.

Closer to home, only 3 per cent of IA UK All Companies funds have made money in 2018. That works out as just nine funds – MFM Bowland, CFP SDL UK Buffettology, VT Cape Wrath Focus, Castlefield B.E.S.T UK Opportunities, Schroder Responsible Value UK Equity, Aviva Inv UK Equity MoM 1, Unicorn Outstanding British CompaniesTB Evenlode Income and Liontrust Special Situations.

In the IA UK Equity Income sector, 4.5 per cent of its members – or four funds – have made positive returns. They are Schroder Income, Schroder Income MaximiserLF Livingbridge UK Multi Cap Income and Threadneedle UK Equity Alpha Income.

Performance of funds vs sector in 2018

  Source: FE Analytics

Aside from money market funds, only one Investment Association sector has every one of its members in positive territory this year – IA UK Direct Property.

Again, this is a very different story to 2017 when 19 sectors saw all their members in the black and another 12 had more than 90 per cent of members making money.

Within IA UK Direct Property, TIME Investments Freehold Income leads the pack with its 7.05 per cent total return, followed by Scottish Widows HIFML UK Property (6.76 per cent), L&G UK Property (4.67 per cent) and Standard Life Investments UK Real Estate (4.51 per cent). VT Redlands Property Portfolio made the lowest return at 2.12 per cent.

Our research also reflects the relative strength of the US market over 2018 as 89.3 per cent of IA North America funds have made positive returns year-to-date. Some 68.8 per cent of IA North American Smaller Companies members are up as well, while 66.7 per cent of IA Technology & Telecommunications funds have made money, reflecting market leadership by the tech sector for much of this year.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.