Given how long it’s been since we’ve had a true bear market, I was curious about the maximum weekly drawdown for funds in the Morningstar 500 so far this year. We’ve had a few mini sell-offs already this year.
Fidelity Select Energy shed 15.3% of its value in a short stretch this year. I can’t imagine any energy investors are surprised that there is risk in this sector. After all, energy has been regularly pummeled throughout the current bull market. The fund lost about 300 basis points more than Vanguard Energy —not a great showing, but the fund is actually in the Morningstar Category’s top quintile for the year to date through April 12 with a loss of 4.5%.
Matthews China lost 14.2% as an array of China region stocks got hit. But again, this fund’s investors likely know that Chinese equities involve risks, so no big shock here. The fund is actually in the black for the year to date with a 7.8% gain.
Oakmark Select is a bit of a surprise, coming in third with a 13.9% loss. Bill Nygren’s eye for good management and modest valuations helps the fund avoid some potholes, but any focused portfolio like this one is going to have some turbulence. In this case, Nygren holds three energy stocks here, and they all got crunched: Weatherford International PLC , Chesapeake Energy , and Apache are down double-digits in 2018. On top of that, General Electric is down 24% this year. You don’t get the market-thumping returns Nygren has without taking risks, and this is a sobering reminder that even the best focused portfolios are going to have some nasty short-term losses.
Artisan Value is another surprise, but it is on the list for similar reasons. It’s got some energy names like Devon Energy that have held it back, as well as Wells Fargo , which has its own issues. Thus, it shed 13% in its maximum drawdown and is down about 5% for the year to date. The fund has been really up and down, and its fondness for energy has played a big part in the “down.” Value funds like this one look rather unlovable, but that’s often the best time to buy.
BBH Core Select is maybe the most surprising fund on this list because it held up beautifully in the 2008–09 bear market. The fund looks for quality companies that generate strong cash flow, and that keeps it out of trouble in many environments. However, it does have a concentrated portfolio, which means just a couple of stocks can send it tumbling. The fund doesn’t own any energy, but it did have more than 5% in Wells Fargo and 6% in Comcast , which has fallen this year. The good news is that it still has a very high weighting (70%) in companies with wide Morningstar Economic Moat Ratings, and that should ensure it has some good defensive characteristics. The fund shed 12.6% in its maximum drawdown this year and is off about 4% for the year to date.
AMG Managers Fairpointe Mid Cap doesn’t have big weightings in its top names, but a wide array of its stocks were stung, from Juniper Networks to Hormel to Tegna , a media company spun off from Gannett. The fund’s maximum drawdown was negative 12.4%, and it is down 3.1% for the year to date, which places it in the bottom decile of mid-cap value funds. Manager Thyra Zerhusen is valuation-sensitive, and that would seem to be one unifying theme of the big drawdown funds. This sell-off hit value stocks the hardest. The funds got some protection against price risk with their value names, but sometimes it’s value that gets hit in a downturn even as growth stocks run.