Investors have more than £30bn in serially underperforming funds

24th September 2013

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UK investors are wasting more than £30bn in lacklustre under-performing investment funds, with Scottish Widows’ portfolios among the worst culprits writes Philip Scott.

Fund broker Chelsea Financial Services, has identified 115 portfolios, in its so-called ‘RedZone’ which is made of funds holding £33bn of investors’ cash.

Almost a third of the cash, at £10.79m, is managed by Scottish Widows. The second worst offender  in terms of assets under management is Legal & General with £3.7bn, followed by State Street with £2.1bn.

Scottish Widows and Legal & General came joint top win regard to the number of funds featured, with seven apiece, followed by HSBC with four funds. View the full list of fund here.

READ MORE: Is it time to invest in UK banks?

The UK All Companies is the sector with the highest number of funds in the RedZone, where 22 made it onto the list, the majority of which are tracker funds, which follow an index, such as the FTSE 100. The same is true of the Europe ex UK sector. The Global sector came second with 15 funds, and Mixed Investment 20-60% shares came in third with 11.

The RedZone identifies funds which have consistently underperformed their peers over the last three years, and Chelsea is encouraging anyone invested in them to at least take a look and see if they ought to switch their investments into something else.

Darius McDermott, Chelsea

Darius McDermott, Chelsea

Chelsea Financial Services managing director, and Mindful Money contributor Darius McDermott says: “Sometimes there may be good reasons for the under-performance and investors may decide to be patient with the manager. In some cases, ditching a perennial under-performer is the only thing to do.

“As being a member of a gym doesn’t guarantee fitness, neither does simply investing in a fund guarantee you will be better off financially. Not reviewing your portfolio on a regular basis can end up being a big mistake and, unfortunately, there are a huge number of investors who have been paying an annual fee to fund managers, who are consistently failing to perform. Like an unused gym membership, it is a waste of money.

READ MORE: Is now the time to invest in Europe?

Amongst the underperformers are three that may surprise investors, as they are funds run by very talented and experienced managers notes McDermott.

The first is SJP UK High Income, which is an equity income fund managed by star Invesco Perpetual fund manager Neil Woodford. “It has less investment flexibility than his more well-known Invesco Perpetual branded funds, however, and higher charges won’t have helped,” notes McDermott.

The second is Jupiter Merlin Worldwide Portfolio, run by John Chatfeild-Roberts and his team. Manager selection in this fund of funds has been relatively good says McDermott, but it has been heavily exposed to the long-term structural growth opportunities in emerging markets, which have underperformed their developed counterparts during the period.

The third is Cavendish AiM, which is managed by Paul Mumford. As the name suggests, this fund invests in the Aim market which has underperformed other UK market segments. “Given the peer group, it would suggest the under-performance is due to the market in general, rather than bad stock selection,” says McDermott.

Manek Growth, a serial under-performer, is once again top of the list of funds which have underperformed their sector average by the biggest amount. McDermott says: “Thankfully there are ‘only’ £20m worth of assets remaining in this fund because it has returned 83% less than the sector average over the three years for the RedZone statistics.

 

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