29th May 2015
A massive £400 billion is being held in out-of-date ‘dinosaur’ investment funds in the UK.
According to research by Hargreaves Lansdown some of these funds started life in the 1970s and are ‘ill-suited to the modern investment environment’. This includes £220 billion in with-profits funds, £100 billion in stakeholder pensions, £75 billion in fund manager ISAs and £5 billion in child trust funds.
There is also an unknown amount of money being held in funds that are ‘closet trackers’, where investors are paying for active fund management but the manager is investing like a tracker fund that aligns to a certain stockmarket.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: ‘These dinosaur investments are funds that time forgot. When launched they may well have been top of the food chain, but have since been superseded by more modern products.
‘That is not to say they should be indiscriminately disposed of, but for many investors a review is probably long overdue.’
Khalaf argued that since the turn of the century charges have come down and investment funds have become more portable, transparent and internet-friendly but some older offerings have failed to keep up. Many are not even promoted anymore and so are low on the list for an overhaul.
Investors with older funds should make sure they review just where their money is invested.
Khalaf has set out a five-step plan:
1. Review your investments: this applies to recent purchases as well as older funds. ‘It makes sense to keep on top of your investment portfolio by making time for a regular annual review,’ he said.
2. Consider your attitude and capacity for risk: your appetite for risk may have changed since you invested, particularly in older funds so make sure the investment is still appropriate.
3. Check any guarantees or exit penalties: some older products may have valuable guarantees attached to them or may levy a penalty for transferring away.
4. Maintain tax efficiency: if you decide to re-invest ISA or pension funds elsewhere make sure you maintain the tax wrapper by effecting a transfer rather than cashing in and moving the money yourself, said Khalaf. He added: ‘Also be aware of any capital gains tax or income tax liabilities which may be incurred by cashing in investments which are not held in a tax shelter.’
5. Take advice: if you are struggling to get to grips with the ins and outs of your investment portfolio then seek independent professional help.