The Worst Mutual Funds of 2014

Advertisement

We recently reviewed the best mutual funds of 2014 — not just to see the fireworks, but to see what their performance could tell us about what the rest of 2014 holds.

worst mutual funds of 2014However, analyzing the worst mutual funds of the year can be just as meaningful.

Could the losers of the first half of the year be the second half’s winners? Will the poor performance continue,or might the worst performing funds be bargains to buy now? What explains such underperformance?

As we did in review of the best funds, we’ll use the S&P 500 Index mid-year performance of 7.1% through June 30 as a benchmark for comparison to the funds with the worst returns year-to-date. Also, in the interest of getting a big-picture view of current and near-term economic and market conditions, we’ll look at a variety of poorly performing mutual funds from different categories, including U.S. equity funds, sector funds and bond funds.

Here are the worst mutual funds through the midway point of 2014:

The Worst Mutual Funds of 2014 – U.S. Equity

worst mutual funds John Hancock Small Cap Equity Fund B Shares (SPVBX)John Hancock Small Cap Equity Fund B Shares (SPVBX): -7.6%

While we sifted through many losing mutual funds that had speculative hedging strategies for 2014, John Hancock Small Cap Equity Fund B Shares (SPVBX) doesn’t boast such an excuse.

Other than what appears to be a simple case of poor security selection, this fund’s primary challenge year-to-date is that it belongs to the small-cap stock category, which is among the hardest-hit areas of 2014’s first half. SPVBX was especially weighed down by Bottomline Technologies (EPAY) and The Advisory Board Co. (ABCO).

Expect this underperformance to continue as the investor crowd grows increasingly doubtful of the bull market’s strength and continues shifting out of riskier stocks with smaller market caps than the S&P 500’s holdings.

The Worst Funds of 2014 – Sectors

worst mutual funds Fidelity Select Retailing Portfolio (FSRPX)Fidelity Select Retailing Portfolio (FSRPX): -3.3%

Another trend in the first half of 2014 is a reduction in consumer spending on discretionary goods and services. This makes consumer cyclical stocks poor performers, and Fidelity Select Retailing Portfolio (FSRPX) is the biggest loser here.

Although consumers didn’t exactly close their wallets to luxury items, investors have decided to take on a more defensive position with sectors, such as healthcare and utilities, which are less sensitive to a slowing economy. That has meant losses for stocks such as Amazon (AMZN) and TJX Cos. (TJX).

The Worst Mutual Funds of 2014 – Bonds

worst mutual funds  BlackRock Emerging Markets Flexible Dynamic Bond Investor C Shares BCEDXBlackRock Emerging Markets Flexible Dynamic Bond Fund Investor C Shares (BCEDX): -0.3%

In the bond category, I eliminated funds with alternative strategies, such as those that invest in currencies or funds that use shorting tactics, and the biggest loser is BlackRock Emerging Markets Flexible Dynamic Bond Investor C Shares (BCEDX) with a -0.3% performance through the first half. This compares to a gain of 3.9% for the most commonly used bond benchmark, the Barclays US Aggregate Bond Index.

BCEDX’s lackluster first-half performance came primarily because of its heavy exposure to below investment grade credit quality bonds and to foreign bonds, which is another indication of the “risk-off” sentiment of investors thus far in 2014.

With an aging bull market, creeping interest rates and moderating consumer appetites all on the minds of investors, it’s difficult to imagine the riskier fund categories — such as bear market funds, small-cap stocks and low-credit-quality (junk) bonds — returning to favor any time soon.

The Worst Mutual Funds of 2014 – All Categories

gl-capital-funds-185GL Macro Performance (GLMPX): -31%

The worst performing mutual fund types thus far in 2014 are bear market or “inverse strategy” funds that sell stocks short with the expectation that stock prices will decline. But in an environment of climbing stock prices, these funds lose — and sometimes they lose big!

GL Macro Performance (GLMPX) is a go-anywhere fund that uses a “macro” strategy to accomplish its investment objective, which is, according to the GLMPX prospectus, to seek “total return with less volatility than the broad equity or fixed income markets.” To do this, the fund manager can use almost any security type, including “foreign currencies, commodity-related instruments, options, futures and forward contracts.”

In different words, GLMPX is a speculative fund that has been recently betting against the resilient bull market and has lost that bet at a tremendous cost to fund shareholders.

Going forward, and barring any unforeseen economic event, this type of speculation will likely face more headwinds and downward pressure in 2014.

As of this writing, Kent Thune did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/07/worst-mutual-funds-2014/.

©2024 InvestorPlace Media, LLC