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Sun shines on value: Best and worst performing funds of Q1

Lewis Jackson  |  20 Apr 2022Text size  Decrease  Increase  |  
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In October 2021, Lazard portfolio manager Aaron Binsted painted a bright future for Australian energy companies and Woodside Petroleum in particular. The underperforming sector was then on the verge of a breakneck run to the top of the ASX performance tables.

Fast forward nearly five months, Woodside is up 40% and silver-rated Lazard Select Australian Equity was the best performing managed fund under Morningstar coverage in the first quarter thanks to outsized bets on energy and banks.

“When we saw the prices that were there, they were absolute guineas and we saw a lot of money for our investors,” said Binsted in reference to the fund adding to its energy positions during the pandemic.

Lazard Select Australian Equity joins resurgent value shops, commodity exchange-traded funds and any strategy overweight Australian resources at the top of fund performance league tables in the first quarter of this year.

Many value strategies, which pick stocks they believe are trading below intrinsic value, have underperformed since the global financial crisis. Lazard’s fund lagged its category between 2019 and 2021.

However, a boom in commodities from oil to wheat and the first interest rate tightening cycle since the pandemic has humbled technology stocks and handed the outperformance baton to funds invested in the building blocks of the real economy.

Below we list the best and worst performing funds this quarter. Use our interactive tables to narrow down your search.

Commodity ETFs boom

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Crude oil, mining stock and other basic material ETFs topped the league tables in the best quarter for commodity prices in over three decades.

Funds with tickers like FUEL, FOOD and MNRS notched double-digit returns as the benchmark S&P/ASX 200 index eked out just 0.74% between January and March.

Top performer BetaShares Crude Oil ETF (ASX: OOO), which gives investors exposure to oil futures, returned 40%. Its one-year return is a blistering 82%.

The fund shared the top spots with a Global Energy Companies ETF (ASX: FUEL) and a trio of funds investing in Australian resources (ASX: QRE, ASX: OZR, ASX: MVR). All returned north of 20%.

Commodity prices are soaring as strong economic growth stokes demand faster than supply can respond. Output from mines, farms and oil rigs has been reduced or disrupted due to the pandemic and years of underinvestment. War in Eastern Europe threatens to remove more supply from already tight markets.

Funds betting on miners, food and metals now outperform the benchmark S&P/ASX 200 index over three- and five-year periods on an annualised basis.

Oil is the one exception. Despite its incredible performance over the past year, investors who put money in the BetaShares crude oil ETF in the first quarter of 2017 or 2019 are still down on an annualised basis. Oil prices fell steadily from 2018 through to a nadir below zero during the early days of the pandemic.

Value managers clinch pole position

Overweight positions in energy, resources and finance helped value managers take the top spots among the managed funds under Morningstar coverage in the first quarter.

Seven of the top ten performing managed funds were either value or income funds. The latter buy companies which pay regular dividends.

Silver-rated Lazard Select Australian Equity took the top spot with a 16% return. Almost a quarter of the fund was held in Whitehaven Coal, Woodside Petroleum and Rio Tinto according to data as of 31 December.

The $2.6 billion Allan Gray Australia Equity followed with a 14% return between January and March. The bronze-rated fund’s $262 million stake in Woodside Petroleum is the third-largest publicly held position in the world, according to Morningstar data.

The payoff has been years in the making for both funds, which built their Woodside positions in 2015 and 2014, respectively.

Australia's largest oil and gas firm underperforms the Morningstar Australia index over a five, ten and fifteen year horizon.

Future-facing ETFs slump

As the real economy’s star has waxed, ETFs investing in the speculative promises on offer in robotics, cryptocurrency and electric vehicles have waned.

The worst performing ETFs last quarter were Perpetual’s Global Innovation ETF (ASX: IDEA) and the ETFS Ultra Long Nasdaq 100 ETF (ASX: LNAS), which uses leverage to boost returns (and steepen losses). They fell 25% and 23%, respectively.

A slew of BetaShares thematic funds investing in Asian technology (ASX: ASIA), cloud computing (ASX: CLDD) and cryptocurrency rounded out the bottom of the ladder with losses around the 20% mark.

Thematic funds and technology stocks are enduring a rocky transition to a rising rate environment. The US Federal Reserve hiked rates for the first time in March and officials say interest rates could hit 2.5% by year end. Higher rates make investors less willing to pay for future profits promised by growth companies.

Shifting global market conditions are likely to have left many new investors nursing losses. Thematic funds pulled in a quarter of all new money into ETFs over the first five months of 2021. Since then, most of these funds are deep in the red.

Managed fund growth bets sour

After years of globally oriented growth funds topping managed fund league tables, stalwart strategies from Hyperion, T. Rowe Price, Vanguard and Baillie Gifford vied for the wooden spoon last quarter.

Gold-rated Hyperion Small Growth Companies slumped 20% weighed by big positions in struggling antipodean tech firms WiseTech Global and Xero.

Scott Berg helmed T. Rowe Price Global Equity, with over $5 billion under management, fell 16% as its stake in electric truck maker Rivian slumped more than 60% year-to-date.

Hot on the heels of the electric truck maker’s blockbuster initial public offering, portfolio specialist Sam Ruiz told Morningstar in November that Rivian was the “right company, with the right strategy, with the right products, at the right time”. The fund made its first private investment in 2019.

Magellan’s troubled family of funds dotted the bottom rungs. The High Conviction trust was down 15.3% and the flagship Global Open Class lost 12.4%.

Pain for the battered High Conviction fund class is likely to continue after top holding Netflix dropped more than 25% in after-market trading on Tuesday. The stream giant reported its first loss of subscribers in a decade.

Bond bloodbath

Of the roughly 100 fixed income managed funds and ETFs under Morningstar coverage, just two had a positive return in the worst quarter for fixed interest in decades.

Sole islands of green in a sea of red, the T. Rowe Price Dynamic Global Bond and the Bentham Global Income returned 3.57% and 1.61%, respectively. Both funds invest across a wide range of credit instruments across the quality spectrum.

Bond markets are seeing some of its worst losses in years as investors ramp up expectations for how fast the Federal Reserve will be raising interest rates.

Both funds also top the performance tables over a three-year time frame.

is a reporter and data journalist with Morningstar. Tweet him @lewjackk or get in touch via email

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