2022 has had a rocky start when it comes to our investments. The year started with a continuation of the rotation from growth to value strategies, before persistently high and climbing inflation started rear its ugly head.
Investors were just starting to get their heads around quantitative tightening and the prospect of a succession of interest rates rises, when Russia invaded Ukraine.
As a result, most bond and equity markets are in negative territory over the first three months of the year.
A glance at the bottom of the table shows that during the first quarter of 2022, the worst performing funds have been those investing in Russia, China, smaller companies, technology and those with out-and-out growth strategies.
Funds that were investing solely in Russian equites have had to suspend trading, as have some Eastern European equity funds.
“Fortunately, Russia was a small part of the global emerging market index,” commented Juliet Schooling Latter, research director at Chelsea Financial Services. “It represented 2.8% of the equity index and 4.5% of the bond index. Those with holdings have written them down to zero and it’s impossible to say when these holdings will be tradable again. Eastern European funds have also been impacted because Russian companies made up a far larger part of that index – some 70%.”
“China has also had a difficult year so far – on the back of a difficult 2021,” added Darius McDermott, managing director of Chelsea Financial Services.
“It has ongoing issues in the property market, the clamp down on regulation has scared investors and its ‘zero tolerance’ approach to Covid is resulting in economic disruption. There are also concerns that China is siding with Russia, so investors a little wary of investing in its stock market.”
While most areas of investment have struggled with the uncertainty, four sectors have managed to stay in positive territory. The IA UK Direct Property sector is up 2.1%, IA Infrastructure is up 4%, while the best performers by far are IA Commodity/Natural Resources and IA Latin America, which are up some 15.9% and 24.8% respectively*.
“Russia’s invasion of Ukraine, on top of pandemic, has exacerbated supply chain issues and caused energy prices to surge,” continued Juliet.
“Russia is a big supplier of oil and gas, so rising petrol and energy prices are obviously making the headlines. But it is also a big supplier of other commodities - nickel, aluminium, copper, steel and platinum to name a few – while Ukraine is a big supplier of wheat and corn. So, other countries that also export these commodities, such as those in Latin America, are also benefitting from the price rises as supply has become constrained.”
“A combination of higher commodity prices and very low valuations have pushed Latin American funds up,” concluded Darius. “The best funds on the Chelsea Platform were dominated by Brazilian equity funds with BNY Mellon Brazil Equity returning an astonishing 34.2%* in the first three months of the year.”
|Rank||Fund||Q1 2022 percentage returns*|
|1||BNY Mellon Brazil Equity||34.2%|
|2||HSCB MSCI EM Latin America UCITS ETF||28.9%|
|3||JPM Natural Resources||28.3%|
|4||iShares MSCI EM Latin America UCITS ETF||28.1%|
|5||Liontrust Latin America||27.7%|
|6||TB Guinness Global Energy||27.7%|
|7||BlackRock Natural Resources Growth & Income||27.5%|
|8||ASI Latin American Equity||26.3%|
|9||BlackRock GF Latin American||26.3%|
|10||LO Commodity Risk Premia||26.0%|
*Source: FE fundinfo, total returns in sterling, 1 January to 29 March 2022.Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and commentators and do not constitute financial advice.