Today we can exclusively name and shame the worst-performing fund over the past three years, according to one analysis.
The latest Chelsea RedZone, which compares the performance of different funds and alerts investors to those not doing well enough, puts the SF Webb Capital Smaller Companies Growth fund at the bottom of its list.
The report is being published next week but The Independent has been given first sight of the figures. While poor past performance shouldn’t automatically mean that you should ditch a fund, consistent underperformance over three years can be a strong signifier that a fund may be some way off achieving the kind of positive performance that investors would hope for.
The new figures reveal that if you had invested £10,000 in the worst-performing fund three years ago, you’d now be £17,707.23 worse off than if you’d picked the best-performing fund in the same sector.
In fact, £10,000 of your hard-earned cash invested in the SF Webb Capital Smaller Companies Growth fund three years ago would have shrunk to just £4,919.65 today. Meanwhile if you’d put the cash in the average fund in the sector it would have grown to £16,035.48.
If you had been fortunate enough to pick the best fund in the sector, the R&M UK Equity Smaller Companies fund, you would be sitting on an investment worth £22,626.58.
“That’s quite a difference,” points out Darius McDermott, managing director at Chelsea Financial Services. But there’s an explanation, he says.
“The incumbent fund manager had a portfolio of stocks that were hard to sell and, in fact, performance has got progressively less bad over the past two years. But that will be of little comfort to anyone who invested, and lost, the majority of their money.”
The fund management group with the highest number of underperforming funds in the “table of shame” is Aberdeen, mainly following its purchase of Scottish Widows Investment Management in April.
“Having completed its purchase, Aberdeen has already rescued seven funds from the RedZone, with the migration of all SWIP-run active equity funds to the Aberdeen team,” Mr McDermott says.
“However, four passive strategies remain, along with three of Aberdeen’s own funds, and with Aberdeen having the largest number of underperforming funds, the turnaround job at the company is far from over.”
Fidelity and Investec come in joint second in the table of underperforming groups, with six funds apiece. However, in terms of assets, BlackRock is top with a massive £8.4bn worth of funds in the RedZone, followed by M&G with £7bn and Newton with £3.3bn.
What about the worst performing sector over the past three years? That’s the UK All Companies sector, according to the report.
“Almost half – around £20bn – of the latest RedZone’s assets are in the UK All Companies sector, which is also home to the largest number of underperforming funds, with 26,” Mr McDermott says.
The Mixed Investments 40-85% Shares sector is next with £5.05bn and 14 funds, followed by the Flexible Investments sector with £812m spread across 12 funds.
“Perhaps unsurprisingly, given the figures above, two UK equity funds account for two-thirds of the underperforming UK All Companies assets,” reveals Mr McDermott. “They are the BlackRock UK Equity Tracker at £8.26bn and M&G Recovery at £6.35bn. I was a supporter of fund manager Tom Dobell’s for many years and it is sad to see the fund languishing so badly.”
The 10 most underperforming funds are led by SF Webb Capital Smaller Companies Growth, 111.15 per cent lower than the sector average over three years.
Next is CF Lacomp World (38.19 per cent below), followed by FP Hexam Global Emerging Markets, Neptune Global Special Situations, FF&P Concentrated UK Equity, Elite Charteris Premium Income, F&C UK Alpha, M&G Recovery, Investec American and Neptune Global Equity.
Bill Gross. Managers do matter
Consistent underperformance should sound alarm bells and make you question your holdings, but the departure of a key manager is another prime reason to think hard about whether to remain invested – especially if they leave the world’s biggest bond fund after 27 years.
That happened this week when Bill Gross (pictured) shockingly quit from the Pimco Total Return fund. “His sudden departure has opened up an opportunity for many managers to show their prowess in this space,” said Chelsea’s Darius McDermott.
For the majority of investors, he advocates flexible bond mandates – which are run largely without restriction in terms of asset allocation, geography and duration of exposure.
“These ‘strategic’ or ‘unconstrained’ funds have grown in popularity in recent years, with many investors preferring to put faith in professionals to make the bond allocation decisions,” he said.
He advises investors to look at alternatives such as the Henderson Strategic Bond, Nordea 1 Unconstrained Bond, M&G Optimal Income or TwentyFour Dynamic Bond.Reuse content