UK focused funds among the hardest hit by market panic

Out of the 100 worst performing funds so far this year, 43 are focused on UK stocks.

Fund investors have not had many places to hide over the past few weeks of market turmoil, with 93% of all Investment Association sector funds having lost money since the start of the year.

Funds that invest in UK-listed equities are over-represented among the worst losses. According to data from AJ Bell, of the 100 worst performing funds (to 16 March), 43 are focused on UK stocks. That isn’t surprising given that UK markets have been among the worst performing of all major equity markets in the world this year.

However, as Laura Suter, personal finance analyst at AJ Bell, notes: “Some UK-focused funds have performed far worse than the market.”

Primarily, the worst performing funds have been those with a “value” focus, meaning they attempt to identify and invest in stocks that are cheap relative to their book value (the value of the company’s assets) or their earnings, among other metrics. Aberdeen Standard Investments UK Recovery was the worst performing UK fund, with a year to date loss of 42%, while GVQ Opportunities is down 37%.  Meanwhile Investec UK Special Situations has fallen 33.5%, M&G Recovery 32% and Schroder Recovery 31%.

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For many of these funds, however, the source of their poor performance is their exposure to oil stocks, which have been seen as potential “value plays”. As Suter notes: “If you delve into the portfolios of these funds you can see where some of the issues lie, with BP, which has fallen 40% since the start of the year, being held by the Investec, M&G and Schroders funds.”

Since the start of the coronavirus outbreak the price of oil has struggled due an anticipation that a shutdown of economic production and travel would see a fall in demand for oil. This, however, was exacerbated by the failure of OPEC (an organisation of major oil producing countries) and Russia to come to an agreement on production cuts, setting off what many see as a price war between producers. As a result, the MSCI World/Energy Index is down 42% since the start of 2020.

This has also meant that energy focused funds are also heavily represented among the worst performing. Schroder Global Energy, for instance, is down 58%, and BlackRock World Energy has lost 47%.

This has also extended to funds that invest in other countries with large weightings toward oil companies. Also among the worst performing funds are HSBC GIF Brazil Equity, with a loss of 45%, BlackRock GF Latin America, which is down 39%, and Barings Latin America and JP Morgan Latin America Equity, both down 38%.

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Source: AJ Bell. FE. Data looks at performance of funds in the Investment Association from 01/01/20 to 16/03/20, excluding those with less than £100m in assets.