Loyalty's a mug's game if your PEP isn't performing

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The Independent Online
Half of all the investors who have bought a series of personal equity plans have bought them from the same manager. Loyalty is commendable but the performances of the best and worst PEPs have diverged so far over the years that investors owe it to themselves to monitor the performance of their investments and consider transferring to another manager if results have been consistently bad.

Out of nearly 800 trusts, the best performing PEP over the last five years has been Prolific's Technology trust, according to Micropal, the source of financial data on the subject. In spite of a poor year in 1996 the trust has clocked up a return of 282.7 per cent if the income has been reinvested. The nine next best performers include Hill Samuel's UK Emerging Companies, Jupiter's Income fund, Old Mutual European, Jupiter European, S&P Financial Securities, S&P Growth, Invesco European Growth, Jupiter UK Growth and Thornton UK Smaller Companies (with a 171 per cent return).

Past performance, of course, is no guide to the future but the best funds have outperformed the average in their sector by anything from 60 per cent to 100 per cent or more. David Aaron, an independent financial adviser in Woburn, Bedfordshire, has chosen his top 50 PEPs that cover the best performers in all the main types.

His list includes the Johnson Fry Double Chip guaranteed PEP, which gives a current return of 7.1 per cent net of charges and fixed over six years; Barclays Guaranteed PEP has an initial 5 per cent charge and an annual charge of 1 per cent, but for an extra 1.2 per cent a year the capital value is guaranteed and capital gains are passed in full to the investors provided they are held for five years. For income, Mr Aaron recommends the Abtrust fixed-interest Corporate Bond PEP, currently yielding more than 9 per cent a year, and Thornton preference Income PEP, investing in preference shares and yielding 8.6 per cent. UK Income & Growth funds include Credit Suisse Income Fund, Jupiter Income Trust, GT Income Fund. Growth trusts include TR City of London trust, Finsbury Growth and Morgan Grenfell UK Equity Income. The list for PEPs investing in smaller companies include the Britannia Smaller Companies, Hill Samuel UK Emerging Companies and Gartmore UK Smaller Companies. Recommended tracker funds, which have low charges and are easy to monitor, come from Gartmore, Legal & General and Norwich Union. European trusts that catch the eye include Fidelity HTR, Old Mutual and Scottish Widows. Murray International Trust and Henderson Strata top the international list, with Schroder Far Eastern and Perpetual International Emerging Companies the international high flyers. Credit Suisse Fellowship is the selected ethical fund. Fidelity Moneybuilder, Skandia MultiPEP and Old Mutual Aaron Income & Growth are the best funds of funds with a spread of other unit trusts.

Investors are not allowed to have a PEP with more than one manager in any one year even if they want to spread their investments. But in theory investors can transfer their previous PEP investments from their original manager to a new one at any time.

It happens less often than it should because most investors are too busy or too lazy to check their funds and choose a new home for them, while others are probably blissfully unaware that they can. Ring your chosen new manager to talk you through the transfer process, though there are snags. Some PEP managers charge an exit fee and a few may charge to accept transfers.

Many of the top names among PEP managers, including M&G, Perpetual, Schroder, Mercury, Gartmore and Morgan Grenfell, also insist that they cannot release parts of the money they manage for you. It is either all or nothing because your investments each year have been "bundled" into a PEP which cannot then be split. Inevitably, this hits hardest at the most loyal investors who have bought their annual PEP from the same supplier and now think it is time to diversify their holdings.

In fact, Mr Aaron believes it is generally unwise to transfer, except in special circumstances. But new PEP investors might be wise to find out whether their chosen manager levies charges to transfer funds or bundles investments .

q The `Independent on Sunday' is launching a free guide to PEPs, written by Steve Lodge, the editor of this section. It is sponsored by GA Life and available by calling 0500 125888, or by filling in the coupon on this page.

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