Special Report

The 7 Worst Investments of 2014

5. Commodities

In a down year for commodities, crude oil has been the biggest loser. Futures contracts in Brent crude, a benchmark for global oil prices, have fallen slumped by more than 37% year to date. Similarly, futures in U.S. benchmark WTI crude oil have fallen by more than one-third since the start of the year. According to a November report from the International Energy Administration, “Relatively weak oil demand since mid-2014, compounding the impact of a rising dollar and relentless growth in unconventional oil supply, had a lot to do with the recent price drops.” Later that month, oil plunged further after the Organization of the Petroleum Exporting Countries (OPEC) announced that it would not cut its output to prop up prices.

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6. Currencies

A rallying dollar has perhaps been the key theme in the foreign exchange market in recent months. The end of quantitative easing by the Federal Reserve and an improved outlook for U.S. growth have helped push the dollar higher. Other factors included hopes that the European Central Bank will expand its stimulus programs as well as aggressive policies from the Bank of Japan. As a result, major currencies such as the Japanese yen, British pound, and euro have all declined against the dollar so far this year.

However, no currency has slumped more against the dollar than the Russian rouble, which has dropped 38.9% this year vis-a-vis the dollar. While selling roubles and buying dollars would have produced the largest gain in 2014, buying the rouble and selling the dollar would have produced the largest loss.

The declining rouble has be painful for many Russians. The Bank of Russia recently cited declining oil prices and international sanctions against the country as contributing to the lower rouble. In an effort to control high inflation resulting from the currency weakness, the central bank raised interest rates.

7. Fixed income mutual funds

The fixed income market is massive and diverse. Investors can choose anything from Treasury bills — which carry little default risk, offer low interest rates, and mature in a few months — to highly speculative securities with equity-like traits, such as high yield bonds and convertible debt. Mortgage debt, municipal bonds, and bank loans also add to the huge variety of available debt.

Bond mutual funds are similarly diverse. To name just one distinction, some bond funds limit themselves to safe investments, while others accept high levels of risk for potentially higher returns. Of course, sometimes risky investments do not pay off. So far this year, the Aegis High Yield Fund declined by more than 12.5%, more than any other bond fund. The fund’s substantial investments in the energy sectors are likely a contributing factor in its slump. If the energy sector improves, the Aegis High Yield Fund may be primed to rebound.

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