Funds: The good, the bad and the ugly
We name the best – and worst – funds which could make you a small fortune or simply lose you money
Saturday 29 June 2013
The UK might have narrowly avoided another recession, but there are nearly 150 British funds that have had a triple-dip of their own and delivered dire returns for three years in a row.
More than £34bn of hapless investors' money is sitting in these consistently under-performing products, and with many of these funds loaded with high charges, it could be time for you to at least review your portfolio to see where the money is being lost.
The RedZone report released by Chelsea Financial Services reveals the repeat offenders, those funds that keep returning a paltry amount or are even losing you a chunk of money.
The report also shows funds that have languished at the bottom of the performance tables but for a valid reason could experience a turnaround in the future. At the other end of the scale, Chelsea highlights the best performers.
We have named and shamed those funds to give you the good, the bad and the ugly – but in the reverse order.
The ugly: Worst performers
One of the worst-performers is Manek Growth, which has, despite its name, done the opposite with your money. If you'd invested £1,000 three years ago, it would be worth just £778 now.
"This fund is the worst performing over three years, returning 50 per cent less than the average fund in its sector over this time – astonishing underperformance," says Darius McDermott, managing director of Chelsea Financial Services.
The UBS UK Smaller Companies is another poor performer, although it would have at least grown your £1,000 ever so slightly to £1,103.
Hexam's Global Emerging Markets fund has also been dire, losing you nearly 30 per cent and giving back only £713.94.
"The fund has an overweight in China, a market we are bearish on," says Jason Hollands at Bestinvest. "Investors should consider a switch."
The F&C High Income fund has had a tough time, delivering only 0.61 per cent. "While rates remain low, the returns are going to be dull and are likely to struggle to beat inflation," says Mr Hollands.
Another dire fund is the JP Morgan European Smaller Companies product, which would have grown your £1,000 to a measly £1,073.
"It is fair to say that this fund's mid and long-term stats are horrible, but if you look much shorter term there is the indication of either a lucky run or the demonstration of an improved management style," says Philippa Gee, who runs her own wealth-management firm. "I would be inclined to leave this fund to really prove itself and only then, if it does, consider supporting it."
The bad: Poor performers not worth writing off… yet
City Financial Strategic Gilt has had a tough time, but the manager's views are not too far off the mark.
"With gilt yields close to 300-year lows, he thinks prices will fall quite dramatically when yields normalise, leading to inevitable capital losses," says Mr McDermott. "As such, the fund is positioned to avoid heavy losses when this situation unfolds.
"We actually agree that gilts look overvalued and the risk to capital, once interest rates start to revert to normal, could be significant. This has been a bold position and has hurt performance, but may serve investors well as quantitative easing is unwound in the US."
Fidelity's Multi Asset funds, a range including defensive, strategic and growth products, have not fared that well. "You can't really expect these funds to significantly beat equity markets," says Adrian Lowcock at Hargreaves Lansdown. "If you're looking at the more-balanced fund strategy, you're likely to lag in raging bull markets. You could expect these funds to be more all-weather, so they will do OK in rising markets but won't outperform massively."
The L&G Multi-Manager funds have suffered from a large position in gold, the price of which has plummeted recently. "Fund performance won't have been helped by exposure to emerging market and China investments, as well as gold positions," says Mr Hollands.
The Aviva Investors Property Investment fund has underperformed others in its bricks and mortar sector, but should still be given a chance, says Mr McDermott. Property as an investment has had a torrid time, but is set for a rebound. And Aviva offers other top property funds, such as its Asia Pacific Property fund, Mr McDermott adds.
Another bad performer is the Jupiter Ecology fund, but it has a very specific mandate to grow your money while also protecting the environment. "The mandate means it continually underperforms other funds in the global sector it is in – so why is it not in another sector?" asks Mr McDermott.
The good: Best performers
Liontrust Special Situations is a top pick, growing your £1,000 to £1,755.
"The managers focus on the companies rather than the market, so they look for companies that have intellectual property – something that can't be easily copied," says Mr Lowcock. "They are experienced in identifying these companies and have really added value."
Cazenove's UK Smaller Companies fund has performed spectacularly, returning £2,013.
"Having a manager with the skill to pick winning stocks in this sector is essential," says Mr Lowcock. "This manager knows the market and can pick out the winners from the losers."
The M&G Global Emerging Markets fund has performed well and is still open to take your money, whereas many others in this space have closed. "A new fund with new money and a young manager, plus the launch coinciding with the beginning of a new bull run, is a powerful cocktail," says Mr Dennehy.
Threadneedle Monthly Extra Income is also among the best. "It has a reasonable income level and if you are happy with three quarters of the fund being in equities, then this could be a neat addition," says Ms Gee.
Threadneedle features again with its European Smaller Companies fund returning you £1,566. But Ms Gee cautions: "While the stats may appeal, I would be more hesitant – just how much of an allocation does the average investor need in European Smaller Companies?
"I would be careful of what holding you already have in this area and step back to let the manager prove himself."
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