The collapse in oil prices as the Coronavirus pandemic choked demand, left investors in the energy sector with nowhere to hide. Financials also suffered. In contrast, while US stock markets powered ahead to all-time highs, driven by technology stocks that flourished in a world of working from home, online shopping, and home entertainment, the energy-heavy FTSE UK stock market index ended the year down -14.3%.
Let us look at the year’s worst performers.
GS North America & Energy Infrastructure Equity Portfolio: -25.7%
This fund has significant holdings in midstream energy companies that are engaged in energy infrastructure activities including, but not limited to, transportation (pipelines), storage and processing. Midstream companies sit in between energy producer companies (for example exploration or drilling companies) and energy user companies (for example refiners or utilities companies). The entire sector was hit by the slump in oil prices when the pandemic took hold.
Jupiter UK Growth: -26.7%
In stark contrast with a fall of just 6% by the average manager in the sector, Jupiter UK Growth dropped like a stone! Performance was not helped by the fact the fund invests in a small number of holdings which therefore carries more risk than funds that are spread across a larger number of holdings (greater diversification). Accordingly, the manager, Steve Davies, left the group in February given this rather poor run.
TM Stonehage Fleming UK Equity Income: -27.3%
Managers Ian Lance, Nick Purves and John Teahan’s preference for ‘value stocks’ (shares in companies that are presently out of favour) hampered performance somewhat, with its hefty weighting in financials a drag on returns over the year. Lance is, however, confident that value investing is now returning to favour.
Quilter Investors Equity 2: -28.2%
Like the Stonehage fund, this Investec-managed fund also suffered from a heavy bias towards value stocks. Investors will be hoping for better performance following the vaccine breakthroughs.
HSBC Gif Brazil Equity: -28.6%
Brazil was one of the country’s most adversely affected by the Coronavirus - President, Jair Bolsonaro had initially questioned the veracity of the virus. The Bovespa stock market index was also hit by the falling oil price, which pushed index giant Petrobras into negative territory.
Brown Advisory Latin American: -29%
With a focus on investing in high-quality Latin American company shares, the three quarters allocation of its underlying assets to Brazil did nothing to help performance over the period and accordingly Brown Advisory Latin American fund had nowhere else to go but down.
BlackRock GF World Energy: -30.2%
BlackRock World Energy invests at least 70% of the fund in companies that are mainky involved in exploration, development, production, and the distribution of energy. The fund endured a drawdown of nearly 40% in the first quarter, when the oil price briefly slid into negative territory at the height of the panic around the Coronavirus pandemic.
Guinness Global Energy: -36%
The Guinness Global Energy Fund provides investors with exposure to global energy markets including oil, natural gas, coal, alternative energy, nuclear and utilities sectors. Pretty much all of these companies struggled to contend with profit warnings and dividend cuts within the plagued energy sector.
Conclusion
These investment funds and the events that unfolded during 2020 show how easy it is for ill-informed investors to lose around 30%-40% of their hard-earned capital in less than a year! Accurate risk assessment, thorough due diligence and appropriate asset allocation certainly helps to protect against such an outcome. That is where H Capital can help – we have successfully navigated the financial markets on behalf of our clients during the past 28 years.
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