The best and worst funds since Russia invaded Ukraine

One month since the war began, energy stocks are thriving and Russian stocks have crashed.

Mining, traditional energy and clean energy have been the top-performing investment sectors, exactly one month since Russian forces crossed the border into Ukraine.

Standout funds include First Trust Nasdaq Clean Edge Green Energy and iShares Global Clean Energy, up 24.5% and 23.2% over the past months.

Traditional energy fund winners included the iShares S&P 500 Energy Sector ETF and SPDR S&P US Energy Select Sector ETF , both up 15.4%. The iShares Agribusiness UCITS ETF fared slightly better, up 16.7%.

The actively managed BlackRock Natural Resources Growth & Income returned 13.7%%, and Amati Strategic Metals made investors 15.1%. BlackRock World Mining also delivered 13.7%.

Two themes are playing out. The first is rising oil prices as Russia’s oil and gas is rejected by buyers, causing supply to drop and prices to rise. A barrel of Brent crude now costs almost $120, 20% more than a month ago. This is good news for oil and gas companies as their profit margins improve.

The second theme is a renewed focus on renewable energy as a way of achieving energy independence and cutting reliance on politically complicated countries for fossil fuels.

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Rather than substituting Russian oil with Saudi oil, or drilling more wells in the North Sea, governments are more likely to increase investment in solar and wind power.

The push for more clean energy will also boost demand for commodities required to make batteries, such as lithium, cobalt and nickel. This has helped mining companies over the past month.

Source: FE FundInfo, 23/02/22 to 23/03/22. Past performance is not a guide to future performance.

The winning themes form part of the “new FAANGs” – standing for Fuels, Aerospace, Agriculture, Nuclear and Renewables, and Gold and minerals, according to Bank of America, the investment bank.

Investment strategists Lauren Sanflilippo and Joseph Quinlan said: “FAANG 2.0 reflects a new world of geopolitical risks and resource/hard asset intensity. It’s within these areas of the market that we find future value given the defining market rotations we expect.”

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The researchers argue that geopolitical tension, strong demand for oil and gas coupled with low supply, and underinvestment in new reserves, will keep fossil fuel prices high. They add that the sector had lots of room to grow as it only accounts for 3.7% of the S&P 500 index compared with 13.4% in 1990.

Other top-performing sectors were cybersecurity and mining. The L&G Cyber Security UCITS ETF and First Trust Nasdaq Cybersecurity UCITS ETF have returned around 16% in a month as investors reevaluated the importance of secure computing in the face of Russian hacking attempts.

The biggest losers since the invasion are Russia and emerging Europe funds. iShares MSCI Russia UCITS ETF has dropped 94%, Liontrust Russia has fallen 86%, BlackRock Emerging Europe is down 49% and Fiera Capital Europe Magna Eastern European is off 38%.

Anything associated with Russia has been hammered as Europe and America have imposed sanctions on Russian exports.

The Russian stock market, meanwhile, partially reopened this morning. It had been closed since 25 February. As a result, funds with a large amount held in Russia are currently unable to sell stocks to meet investor withdrawals. This has led to a flurry of fund suspensions. When a fund is suspended, investors cannot buy or sell.

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Broader emerging markets funds also suffered, such as the iShares Emerging Markets Dividend ETF, falling 14%, and BlackRock Emerging Markets, down 10%.

Notably, the best-performing funds of the past month were exchange-traded funds (ETFs) tracking niche areas of the stock market. By taking a concentrated bet on one theme, they give investors a pure way of betting on market winners and losers.

In comparison, active fund managers tend to focus more on risk and portfolio diversification. Even a “clean energy” active fund would make efforts to spread bets across a range of geographies and sub-sectors, which can impact returns when markets are rising.

At a stock market index level, only German and French stocks are in the red one month since the invasion. The best-performing market has been the tech-heavy Nasdaq 100 index in America, followed by the S&P 500 index of America’s largest companies.

Source: FE FundInfo, 23/02/22 to 23/03/22. Past performance is not a guide to future performance.