Financial, Energy Sectors Feature in 10 Funds with Largest Losses in First Half of 2018

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InvestmentNews compiled a list of the 10 funds that saw the largest losses over the first half of 2018, citing volatility as the biggest story thus far this year. For instance, a slew of VelocityShares and ProShares funds tied to the volatility index (VIX), including the infamous Credit Suisse VelocityShares Daily Inverse VIX Exchange Traded Note (XIV) took a dirve in February 2018, when volatility itself became susceptible to uncertainty.

Yet as the following list of 10 largest fund losses in 2018 indicates, volatility isn't the only risky part of the modern market. As Bloomberg recently wrote, "Never mind the VIX, anxiety is everywhere in the US Stock Market."

10. Lyrical US Value Equity (LYRIX), -5.32%. This diversified fund with an emphasis on technology and financial sectors took a hit when the financial market performed poorly in early 2018.

9. Mainstay Cushing Renaissance Advantage (CRZZX), -5.44%. This fund mixes energy and industrial stocks, and as we've written many times, energy is a risky business.

8. BP Capital TwinLine MLP Fund (BPMIX), -6.75%. The very same low-cost features that make Master Limited Partnerships (MLPs) attractive in times of energy sector success also expose MLPs to added risk in times of downturn, which contributed to BPMIX's poor return; this particular fund invests "at least 80% of its net assets in energy infrastructure MLP investments."

7. Fidelity Select Environmental & Alternative Energy (FSLEX), -6.78%. Waste management and pollution control are FSLEX's two primary priorities, but like any fund that invests in the energy sector, it is susceptible to industry downturns.

6. Vanguard Consumer Staples Index (VCSAX), -6.83%. The consumer staples sector refers to food/beverage manufacturers and distributors and producers of other non-durable household goods and personal products. Unfortunately, consumer staples are dying due to online competition (think Amazon or eBay) and continually rising global commodity prices, which, in turn, increases costs.

5. Fidelity Select Insurance (FSPCX), -7.03%. The aforementioned financials sector includes insurance companies, and uncertainty regarding the insurance environment has negatively impacted funds, such as FSPCX, which took a particular hit in April.

4. Fairholme Fund (FAIRX), -8.49%. With concentrated exposure to financials and real estate investment trusts (REITs), the Fairholme Fund is susceptible to the same poor performers that harmed aforementioned funds LYRIX and FSCPCX. The Fairholme Fund was the #1 poorest performing mutual fund on our list of the 20 Worst Performing Mutual Funds of 2017.

3. Fidelity Select Consumer Staples (FDCGX), -8.97%. Similar to Vanguard's VCSAX, Fidelity's consumer staples fund has suffered due to problems in its namesake sector.

2. Kinetics Internet Fund (KINAX), -14.83%. If bitcoin were to be personified in a mutual fund, KINAX would be it. The Kinetics Internet Fund had a big stake in bitcoin in addition to other tech-sector investments, and bitcoin has performed exceptionally poorly over the first half of 2018.

1. CGM Focus Fund (CGMFX), -18.14%. This fund is both concentrated and takes short positions, both of which are known risky behaviors.

In May, SeekingAlpha wrote of three cautionary tales, naming the Fairholme Fund (FAIRX, #4), CGM Focus Fund (CGMFX, #1), and The Sequoia Fund (SEQUX, not sustained heavy losses in 2017) as three mutual funds that illustrate what can go wrong when placing a significant amount of assets in the same or similar stocks—in other words, what happens when concentration risk manifests as losses.

Fairholme, for instance, formerly invested—in concentrated fashion—in AIG, Sears Holding, Fannie, Freddie Mac, and Bank of America, whose various stumbles exponentially harmed the Fairholme Fund because of its greater-than-usual concentration in the various stocks.

As for CGM Focus Fund, 32% of its assets were tied in a Treasury bond short, while the Sequoia Fund had 30% of its assets invested in Valeant Pharmaceuticals (VRX) when that particular stock all but crashed, taking Sequoia along for the ride due to Sequoia's high concentration of investments in VRX.

If you have invested with any broker or financial adviser whose recommendation of one of the aforementioned 10 worst performing mutual funds was unsuitable given your investments objectives and risk tolerance preferences, or has over concentrated such a position in your portfolio, and this misconduct has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.