As if 2016 couldn’t get much worse for investors, the FTSE 100 – along with many other global indices – officially entered a bear market thanks to a significant plunge in the oil price. 
Well, putting it into context, on Wednesday the blue-chip UK index fell 20 per cent since its peak in April last year but it has since re-emerged from that technical calamity as it is now only down 16.8 per cent in price terms as it currently stands at 5,908 at the time of writing.
Price performance of index since peak
Source: FE Analytics
Nevertheless, these falls along with what has already been a shaky start to 2016 has supplied financial journalists up and down the country with plenty of hyperbolic ammunition.
Still, it’s not all been bad news for investors. Bond yields, despite many saying they wouldn’t act as a hedge against equity market risk, have rallied once again falling as share prices around the world tumbled.
These events, along with FE’s Crown ratings being rebalanced, have kept the team at FE Trustnet very busy. Here, we highlight a selection of our favourite articles of the week.
From all of us here, have a cracking weekend.
FTSE bear market roars: An immense buying opportunity or is there more pain to come?
We start off the with headline news of the week.
In this article, senior reporter Daniel Lanyon gauged the reaction of various industry commentators about the market’s falls. Most were cautiously optimistic, stating that a buying opportunity of sorts has opened up.
However, none were saying investors should jump into equities straight away.
“Of course, investing into the market at these levels is more attractive than a year ago or even a month ago. However, it is very hard to gauge or predict whether this is a bottom. The decline in the oil price and the effect this is having on the large oil constituents within the FTSE look likely to continue,” Ben Willis, head of research at Whitechurch, said.
“Concerns over the Chinese economy and its effect on commodity prices continues to weigh on miners. There is plenty of negative sentiment around and from a contrarian perspective, this is usually a good time to go back in.”
Coram’s Martin Gray warned that while opportunities have arisen, investors shouldn’t fall into yield traps.
“With dividend pay-out ratios close to 100 per cent and dividend cover close to 1, it doesn’t leave much room for error.”
GARS among 66% of absolute return funds sitting on a loss during the FTSE’s bear market
Given bonds haven’t had a great time of it since the FTSE’s falls thanks to already high valuations heading into the period, news editor continued our ‘bear market special’ by looking how absolute returns funds have performed.
As the headline suggests, the answer was ‘not great’.
He found that only 34.5 per cent of IA Targeted Absolute Return funds have managed to deliver a positive return during the FTSE 100’s 20 per cent fall
The picture was even worse in that regard as of the £75.68bn of assets in the sector, some £62.24bn of that (or 79.1 per cent) is sitting in loss-making funds during the period in question, largely as a result of the £27bn Standard Life GARS fund’s 4.27 per cent falls.
Hargreaves Lansdown’s Mark Dampier said this shouldn’t be something for investors to be annoyed or frustrated about, though.
“I’ve got some GARS and I would admit that it hasn’t had a great six to nine months, but it hasn’t been disastrous. These funds aim for capital preservation but they can’t completely surrender upside potential. I’m pretty happy that the fund has only lost 4 per cent or so when the FTSE is down 17 per cent, and if you’re not happy, should you really be investing in the first place?,” Dampier said.
The funds making the biggest jump up the FE Crown ratings table
The FE Research team has just completed the latest biannual rebalancing of the FE Crown Ratings so we delved into the new rankings to see what changes have occurred.
Almost 15 funds have gone from holding either one or two crowns – which are at the bottom end of the system – to being awarded the top five crown rating. Six have gone from one to five, while another eight have moved from two crowns to the maximum.
One of those making the biggest jump is FE Alpha Manager Mark Slater’s £34.4m MFM Slater Recovery fund, which sits in the IA UK All Companies sector’s top decile over three years with a 59.53 per cent total return. This comes off the back an especially good past two years when the portfolio made significant gains when UK equities struggled to make headway.
Slater’s bias towards small and micro-caps is one factor in its recent success. This attribute was also seen in some of the other funds moving up the FE Crown ratings, such as David Walton’s £12.7m Marlborough European Multi-Cap fund and TB Amati UK Smaller Companies.
To find out which other funds have benefitted from a big promotion – and which ones suffered the biggest demotions – have another look at the story.
Why is this top-performing fund being ignored by investors?
Reporter Lauren Mason took a look at the Hermes Global Emerging Market fund, which has five FE crowns and has provided a top-decile total return over one, three and five years.
Performance of fund vs sector under Greenberg
Source: FE Analytics
Not only has manager Gary Greenberg delivered strong returns, he has also done so with a low annualised volatility and maximum drawdown. So why, then, is has this top-performing fund often been over-shadowed by its larger peer Hermes Asia ex Japan Equity?
Mason posed the question to a panel of investment professionals, with Apollo’s Ryan Hughes explaining that it was a very close call between the two funds in terms of which one he bought.
“There’s a bit of overlap between the two funds – the last time we spoke to both managers there was about a 30 per cent stock commonality between the two, although that was about a year ago,” he said.
“We looked at Gary’s fund as well but chose Jonathan Pines’ fund on the basis that we wanted more emerging Asia exposure at the time, and we thought there wasn’t a case to double up with Hermes. The emerging market team at Hermes is very strong, though.”
