The market shock in the first week of February provoked a severe downturn in global equities and bonds, with small cap mandates and funds focused on Japanese equities suffering the heaviest losses.
The worst performing fund in the IA universe during those days of market correction, 1 - 6 February, was the MFM Junior Oils trust, which lost 9.4 per cent, according to data from FE Analytics. This fund is run by Sector Investment Managers, with many back office functions performed by Marlborough.
Smaller companies funds would likely suffer most when bond yields are rising - as during the recent period of market stress they did - because many smaller companies pay no, or little, in the way of dividends. Higher bond yields tend to reduce the attractiveness of assets that pay no income, or where the income is uncertain, like smaller companies.
Also a fund consisting largely of investments in small cap oil companies would be likely to suffer as such companies spend a lot of cash as they explore for oil, and higher bond yields pushes up the borrowing costs for those companies.
The second worst performer during the turbulent period for markets was the Invesco Perpetual Japanese Smaller Companies fund, which lost 8.2 per cent.
Japanese equities tend to perform badly when global markets are suffering. This is because the Japanese market contains lots of companies in the export sector, which might perform less well in a downturn.
The worst performing fund with a substantial exposure to UK equities was the £1.1bn Marlborough UK MicroCap fund, run by the well-known fund manager Giles Hargreaves. The fund lost 8.05 per cent in a week.
Microcap companies are less liquid than their larger cap peers, and so would be likely to fall more than the wider market when market is falling, and rise more than the wider market when the market is rising.
On the flipside, the best performer in the IA fund universe during the turmoil was the VT Arden UK fund, which invests in a combination of bonds and equities.
It is one of the few funds to have delivered a positive return in 2018 year to date, and during the first week of February when market angst was it most severe, the fund delivered a positive return of 3.52 per cent. It is up more than 3 per cent year to date.
By investing in a combination of bonds and equities, the fund has proved less volatile than those which invest purely in equities or bonds.
The next best performer is the £250m City Financial Absolute Equity fund. It is the absolute top performer in the IA Targeted Absolute Return sector over the past three years, returning 36 per cent, compared with 4 per cent for the average fund in the sector.
A key driver for the performance of this fund is the short position it has on the US dollar, with the currency having been a weak performer over the past year.