Scores on the doors: fund sector winners and biggest losers

It has been a first six months of the year many investors will want to forget. Kyle Caldwell looks at how different fund types have fared.

Just seven of the 58 fund sectors managed to deliver a positive return in the first half of 2022, figures from FE Fundinfo show.

The gap between the best and worst fund sector is stark. Leading the pack (from that start of 2022 to the end of June) is the Investment Association (IA) Commodity/Natural Resources sector, up 6.8%. Bringing up the rear is IA UK Index Linked Gilts, in which the average fund has fallen 25.4%.

The six other sectors keeping their heads above water were IA UK Direct Property (5.3%), IA Latin America (4.8%), IA Infrastructure (2.9%), IA USD Government Bond (1.7%), IA Short Term Money Market (0.2%) and IA Standard Money Market (0.2%).

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10 best-performing fund sectors in first half of 2022

Source: FE Fundinfo. Data from 1 January 2022 to 30 June 2022. 

Overall, as research by wealth manager Quilter Cheviot points out, only 6% of funds managed to make money in the first six months of 2022.

Nick Wood, head of fund research at Quilter Cheviot, notes: "The first half of 2022 has been a torrid time for most investors, with both equities and bonds seeing significant declines.

“It was no different in the world of investment funds, where only 6% of all funds in the Investment Association funds universe managed to register a positive return in sterling terms in the first half of the year.”

Wood adds for the small number of fund winners the big successful trend has been those with energy exposure.

Analysis carried out by interactive investor last week, of the top fund performers, found that energy and commodity funds accounted for 15 of the top 20. The three top performers, all US energy exchange-traded funds (ETFs), have returned a meaty 50%. Even those at the lower end of the top 20 are sitting comfortably on returns in the upper 20s and low 30s.

Switching back to fund sector performance it is notable that smaller company funds feature among the worst performing sectors. IA European Smaller Companies, IA UK Smaller Companies, IA North American Smaller Companies, IA Japanese UK Smaller Companies are all in the bottom 10 sector performers, outlined in the table below.

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Smaller companies are riskier than larger companies, and are much more vulnerable to investor sentiment quickly turning sour. A long term investment horizon, therefore, is crucial.

Technology-focused funds have also posted heavy falls, of 25.2% on average. Technology and other growth shares are seen as ‘jam tomorrow’ stocks, as their more expensive valuations are hinged on their future earnings potential. Such companies are being negatively impacted by high inflation and increases in interest rates because both devalue their expected future earnings. 

10 worst-performing fund sectors in first half of 2022

Source: FE Fundinfo. Data from 1 January 2022 to 30 June 2022.