Worst Performing Mutual Fund Categories Of 2015

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Includes: APJAX, PGEAX, RYWTX, SLANX, VGPMX
by: Zacks Funds

mutual funds We have already shared with you the best and worst performing mutual funds in the Zacks Mutual Fund Commentary section, and last time we discussed the Top 5 Mutual Fund Sectors in 2015 . Now, let's look at the worst performing mutual fund categories.

Each of the quarters of 2015, save the final one, spelt agony for investors. Benchmarks saw their worst yearly finishes since 2008, and mutual fund investors too felt the pain. The year 2015 turned out to be anything but rewarding for most mutual funds. Stock funds also proved volatile, and bond funds delivered losses.

While 87% of the funds gained in the first quarter of 2015, just 41% of mutual funds could manage to finish in the green in the second quarter. In the third quarter, a dismal 17% of mutual funds managed to finish in the green. The fourth quarter was the only saving grace, wherein many mutual fund categories attempted to reverse their year-to-date losses.

Nonetheless, the majority of fund categories had ended in the red. The biggest category losers in 2015 were in line with certain key events of 2015. For example, the slump in crude prices continued through 2015, dragging the energy sector to the bottom. Meanwhile, the Latin American economies were under pressure, and mutual funds focused on that region too had to share the pain. Similarly, as the commodities were battered by a surging dollar, among other headwinds, these funds too ended deep in the red.

Fund Category Losers

Below, we present the 10 biggest mutual fund category losers of 2015:

Fund Categories

2015 Return (%)

Energy Limited Partnership

-34.75

Latin America Stock

-29.94

Equity Energy

-27.16

Commodities Broad Basket

-23.97

Equity Precious Metals

-23.25

Natural Resources

-22.16

Diversified Emerging Mkts

-13.78

Commodities Precious Metals

-12.16

Utilities

-9.86

Pacific/Asia ex-Japan Stk

-7.38

Click to enlarge

Source: Morningstar

Energy Sector

The downtrend started in mid-2014, and the slump for energy prices continued in 2015 as well. WTI Crude Oil was at $52.72 on Jan 2, 2015, while Brent Crude Oil was at $55.38. From those levels, both slumped to near $36 by the year-end. This obviously resulted in a slump in the energy sector and Equity Energy and Energy Limited Partnership were among the biggest mutual fund category losers in 2015, being 34.8% and 27.2% down, respectively. Moreover, not a single Equity Energy mutual fund ended in the green in 2015.

As crude prices are hovering around their 7-year lows, the top energy companies have cut spending (particularly on the costly drilling projects) on the back of lower profit margins. This, in turn, has meant less work for the beleaguered drillers as offshore exploration for new oil and gas projects has almost come to a standstill. Moreover, the dollar surge is another headwind for the energy sector.

In the absence of production cuts from OPEC, the resilience of North American shale suppliers to keep pumping despite crashing prices, and a weak European economy, not much upside is expected in oil prices in the near term.

Fund to Sell

Putnam Global Energy Fund A (MUTF:PGEAX) seeks long term capital growth. PGEAX invests primarily in global large and mid-size companies involved in exploration, production and refinement of conventional and alternative sources of energy.

PGEAX currently carries a Zacks Mutual Fund Rank #4 (Sell). In 2015, PGEAX had lost 35.8% and the 1-year loss is 38.8%. Also, the 3 and 5-year annualized losses now stand at 18.5% and 11.7%. The annual expense ratio of 1.27% is lower than the category average of 1.51%, but PGEAX carries a front-end sales load of 5.75%.

Latin America

The Latin America Stock fund category was the second biggest loser, which plunged nearly 30% in 2015. Latin America mutual funds had a torrid run in the last five years, witnessing heavy outflows and dismal performances. The year 2015 was no different for them, as they had to tackle the failure of its largest economy, Brazil, among other headwinds. Brazil is witnessing the worst recession in decades after its GDP nosedived 4.5% year on year in the third quarter. Meanwhile, the U.S.-domiciled Latin America funds saw their asset base slump 85% to $1.4 billion since 2010.

South America's second-largest economy, Argentina, has been plagued with weak growth, high inflation, declining currency and debt default issues. The macroeconomic outlook according to LatAmEconomy.org is not favorable either. They acknowledge that the high economic growth prospects experienced in the 2000s are over now. Per the website, "The region continues to deal with a deteriorating external environment that, without experiencing any major internal crises, is leading to modest growth rates. Medium-term growth projections, however, show further downward revisions."

Some experts fear that the outflows may continue, forcing many investors to stay away from the Latin America focused funds. Thus, the survival of some of these funds may well be in question.

Fund to Sell

Deutsche Latin America Equity Fund A (MUTF:SLANX) invests most of its assets in Latin American common stocks. A maximum of 20% of assets may be invested in US and other non-Latin American issuers and debt securities that may include junk bonds.

SLANX currently carries a Zacks Mutual Fund Rank #5. In 2015, SLANX had lost 30.4% and the 1-year loss is 35.3%. Also, the 3 and 5-year annualized losses now stand at 20.4% and 14.5%. The annual expense ratio of 1.54% is however lower than the category average of 1.75%. SLANX carries a maximum front-end sales load of 5.75%.

Commodities, Precious Metals

In addition to the slump in crude prices, imminent rate hike fears also kept the commodities under pressure. The U.S. dollar also kept surging in 2015, hitting multi-year high against the euro. Stronger dollar intensified the downward pressure on commodities. Dollar-denominated commodity prices, including crude oil, turned out less affordable to users of other currencies. Moreover, borrowings are set to be costlier and particularly so for high-yield firms.

On that note, precious metals too were obviously affected. Remember, higher rates tend to weigh on precious metals, as they provide no yield and struggle to compete with interest paying assets in the wake of rising borrowing costs. As the Fed ended an era of extraordinary monetary policy easing by hiking interest rates in December last year, gold prices plummeted to six-year lows. The gold rout will also hit metal producers who are already reeling under a depressed pricing environment. Gold miners are trimming costs and shedding non-core assets to optimize their portfolio as they grapple with lower prices of the metal.

Fund to Sell

Vanguard Precious Metals and Mining Investor (MUTF:VGPMX) invests in domestic and non-US firms that are primarily involved in exploration, mining, development, fabrication, processing, and marketing of metals or minerals such as gold, silver, platinum, diamonds, or other precious metals. A maximum of 20% of its assets may also be invested directly in gold or other precious metal bullion and coins.

VGPMX currently carries a Zacks Mutual Fund Rank #4. In 2015, VGPMX had lost 29.6% and the 1-year loss is 35.6%. Also, the 3 and 5-year annualized losses now stand at 26.8% and 22.5%. The annual expense ratio of 0.29% is however lower than the category average of 1.43%. VGPMX carries no sales load.

Diversified Emerging Markets & Asia

Diversified Emerging Markets slumped 13.8% in 2015. According to Bank of America Merrill Lynch's monthly survey, fund managers are the most underweight on emerging-market equities against developed-market equities since the survey began in 2001.

Goldman Sachs projects that yuan traded at an offshore rate may weaken by 2.5% to 3% against the dollar in the next 2 months. Eventually, the devaluation of the yuan may impact other emerging market currencies, as they are often influenced by the monetary policies in the world's second-largest economy, China.

The bearish outlook is concentrated mostly on Asia. Investors are apprehensive about the slowdown in China's economy while the U.S. central bank may hike rates. Perhaps, this explains why Pacific/Asia ex-Japan Stock category was the 10th biggest loser in 2015.

However, the Japan category was the best gainer in 2015, justified by the multi-year record highs that Japan's key index hit in 2015.

Funds to Sell

Rydex Emerging Markets 2X Strategy Fund A (MUTF:RYWTX) seeks returns that are 200%, excluding fees and expenses, of the daily performance of the BNY Mellon Emerging Markets 50 ADR Index. RYWTX invests most of its assets in companies listed in the underlying index and in derivatives.

RYWTX currently carries a Zacks Mutual Fund Rank #5. In 2015, RYWTX had lost 37.4% and the 1-year loss is 35.6%. Also, the 3 and 5-year annualized losses now stand at 26.1% and 22.9%. The annual expense ratio of 1.75% is however lower than the category average of 2.01%. RYWTX carries a maximum front-end sales load of 4.75%.

Aberdeen Asia Pacific (ex-Japan) Equity Fund A (MUTF:APJAX) invests most of its assets in companies from the Asia-Pacific region, but excluding Japan. The equity securities may be of any market capitalization. APJAX may also invest in emerging economies, without any limit.

APJAX currently carries a Zacks Mutual Fund Rank #5. In 2015, APJAX had lost 17.6% and the 1-year loss is 19.3%. Also, the 3-year annualized loss now stands at 7.7%. The annual expense ratio of 1.50% is however lower than the category average of 1.57%. APJAX carries a maximum front-end sales load of 5.75%.

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