3 Funds that Went From Hero to Zero

The first six months of 2020 were tough for investors, but some fared worse than others. We look at three funds that have fallen from the top of the performance tables

Annalisa Esposito 4 August, 2020 | 9:06AM
Facebook Twitter LinkedIn

Hero to Zero Funds

The outbreak of the coronavirus has shaken stock markets around the globe, and investors have endured a rollercoaster ride in the first six months of 2020.

While some funds held up better in the crisis than others, some former top performers have seen a sharp turn in fortune and are now languishing at the bottom of their category. 

Data from Morningstar Direct shows there are three funds in particular which have gone from hero to zero. We looked at funds that were in the top decile of their Morningstar category at the end of 2019, and fell to the bottom decile of the group after the first half of 2020. 

To do this, we screened for the clean share classes of UK-domiciled funds with at least £150 million of assets under management, looking at their ranking within their Morningstar category.

Kames Diversified Monthly Income

One fund that has seen a reversal in fortune is the three-star rated Kames Diversified Monthly Income. The fund was in the top 4% of performiers in its GBP Moderate Allocation category at the end of 2019, and has fallen to within the bottom 9% this year. The fund returned more than 18% last year, but has tumbled by 11.4% this first six months of 2020 compared to an average fall of just 4.6% among its peer group.

Income funds have been hit hard in the global pandemic as of the dividend-paying companies in which they invest have cut their dividends to shore up their finances. The Kames fund targets a yield of around 5% per annum, something that may be harder than usual to achieve this year.

Among the worst affected areas of the dividend world are consumer companies, real estate and energy, which have all been struggling during the lockdown. In particular, Japan Hotel REIT (NIPOF) and American restaurant operator four-star rated Darden Restaurants (DRI) stand out as some of the fund's weakest holdings, with their shares down 40.8% and 46.2% respectively over six months. 

Japan Hotel REIT, as the name suggests, invests in hotels mainly located in the major metropolitan areas in Japan; it faced difficulties amid lockdown with would-be tourists forced to postpone or cancel trips. Meanwhile, Darden Restaurants sales were hit by coronavirus as demand for dining out collapsed following the outbreak; it reported that sales plunged more than 44% between February 24 and April 19 alone.


Premier Income

The two-star Premier Income also aims to provide an income to its investors, and sits in the UK Equity Income Morningstar Category. Its fate was to fall from the top 6% of performers to the bottom 10% in just over half a year. The fund, which was up 27.3% in 2019, was down 28.4% in the first half of 2020, compared with an average loss of 21% across the category. 

A main detractor to its performance was oil and gas company five-star rated Royal Dutch Shell (RDSB), whose shares fell more than 43% after the FTSE stalwart announced in April it would be cutting its dividend for the first time since World War II. Shell has also had to grapple with a coronavirus-related slump in demand that’s saw Brent crude prices fall from $68 to just $25 per barrel this year.

Worse still was the performance of Edinburgh-based aviation services businesses Menzies (MNZS), whose shares plunged 73%. The firm has joined the ranks of dividend-cutters this year as the Covid-19 crisis hammered global travel markets. The company said it is taking cost reduction measures, with global headcount reduced by 17,500, while directors and senior management have taken a 20% pay cut, and is also pitching for UK government aid.

LF Miton UK Value Opportunities

Up an incredible 39% in 2019, the two-star rated LF Miton UK Value Opportunies fund has fallen into the bottom decile of its Morningstar Category six months into 2020. The fund was down 26.8% after the first half, compared with an average loss of 16.6% among its peer group, making it the final fund on our hero to zero list. 

The fund, whic hsits in the UK Small-Cap Equity category, has been hurt by investments in Wagamama-owner Restaurant Group (RTN) and British Airways-owner International Consolidated Airlines Group (IAG), whose shares fell 74.2% and 65.6% respectively. in the first half. 

While the Government has introduced a restaurant voucher scheme to encourage diners back into their favourite haunts, analysts say the sector's recovery will take some time yet.  Restaurant Group, for example, plans to take a staggered approach to reopening its outlets, with just 25% of restaurants opened by the end of July, rising to 60% by the end of August. However, it is expected that 10% of its outlets will not open again this year. 

Meanwhile, International Airlines Group saw passenger capacity on its airlines slump by 94% from late March as fleets were grounded and travel bans enforced around the world were. Its losses, in the first quarter alone, amounted to €535 million.

The last time the airline industry was hit with a comparable grounding to this was after the 9/11 terrorist attacks in the US and international airspace was closed. Morningstar analyst Joachim Kotze says any recovery for the aerospace sector will depend on consumers' ability and willingness to travel, and long-haul routes in particular will take longer to bounceback.  

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Annalisa Esposito  is a data journalist for Morningstar.co.uk