Surging inflation, rising interest rates, fear of recession, Russia’s invasion of Ukraine, China’s zero-Covid policy, UK political uncertainty … all have contributed to plunging fund values in 2022.
Snapshots tend to be universally gloomy.
For a cynic, this has produced some strange anomalies.
Example One: Disruptive growth companies and tech stocks have had a prolonged period of underperformance, with the tech-heavy Nasdaq index adrift more than 25 per cent in the six months to the end of June, prompting a This Is Money headline declaring – “Disruptive growth gets disrupted”.
Example Two: No doubt to the chagrin of Just Stop Oil, energy shares have been doing best.
Example Three: Latin America, which many would rank as a perennial basket case, is a star performer.
At the halfway point, research by wealth management group Quilter found that just six per cent of funds in the Investment Association posted positive returns. According to Seeking Alpha, the average equity fund was down 23.47 per cent in the nine months to the end of September. Trustnet bemoaned how 90 per cent of funds had made a loss over the ten months to October’s close.
It stated: “When we dug a bit deeper into the numbers we found that 2,982 of the 5,029 funds – or 59.3 per cent – have made a double-digit loss this year. This compares with just 148 funds (or 2.9 per cent) that are up by ten per cent or more over the same period – so 20 times more funds are down by double-digits.”
Ouch!
Of sector performance, it went on: “The average IA Latin America fund is up 25.8 per cent while the typical IA Commodity/Natural Resources fund has made 19.2 per cent; both of these can be attributed to the surge in commodity prices that came with the end of the Covid lockdowns, and the war in Ukraine.”
It added: “The strongest returns tend to have come from funds that focus on energy stocks, which have been buoyed by rising oil and gas prices. The worst performers, on the other hand, are more of a mixed bag but tend to fit into two camps: eastern European funds, where losses stem from Russia’s invasion of Ukraine; and funds that invest in growth or tech stocks, which have sold off as higher interest rates make investors less willing to pay up for their future earnings.”
Now, before panic sets in, let me remind you that markets have been here many times before and often bounce back quickly – it’s when not if … but unfortunately nobody knows when that when is.
One fund manager told me recently that we will look back in a few years’ time and the “when” will have been when central banks and governments got inflation under control.
I think that, and some sort of breakthrough with Ukraine, are key for recovery.
Remember too that over the long term, there is an upward trend of returns from equities and bonds, despite the short-term volatility caused by major events. In fact, if you invested £10,000 on 31 December 2000, you could have seen your money grow by nearly 500 per cent when investing in global equities.
Quilter stresses: “Don’t let short-term blips distract you. Investing over the longer term (five years or more) is more likely to be successful.
“During periods of volatility it can be tempting to exit the market, but time in the market is usually more successful than trying to time the market. Keeping your money invested means you can benefit from any upsides. Missing just a few good days can significantly reduce how much your investment grows.”