Oil Price Decline Hits Funds
Energy-related sector funds aren't the only ones taking a hit.
This article was originally published as a blog post sent to Morningstar FundInvestor subscribers earlier today. Download a complimentary copy of FundInvestor here.
The sell-off in oil gained pace this week as oil prices fell below $40 a barrel. That's good news for businesses where oil is a big expense or that depend on customers driving to their stores. However, it's obviously bad news for commodities funds, energy funds, and really any fund that owns shares of natural-resources stocks.
Let's take a look at the hardest-hit groups. Through Tuesday, here are year-to-date category returns:
Equity Energy: -26%
Equity Precious Metals: -23%
Commodities Broad Basket: -23%
Natural Resources: -22%
Diversified Emerging Markets: -13%
Emerging Markets Bond: -5%
Small Value: -5%
High-Yield Bond: -3%
It's not pretty, that's for sure. High yield will be worth watching as a fair amount of high-yield debt comes from the natural-resources sector. If oil prices stay depressed, that will put greater pressure on energy company debt.
Among diversified equity funds, Longleaf Partners (LLPFX) and GoodHaven (GOODX) have been the hardest hit. Longleaf is down 19% because it has double the market's weighting in energy. GoodHaven's weighting isn't quite that big, but it also has hard-hit Barrick Gold (ABX) weighing down returns.
Russel Kinnel does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.