Would you know a dog if you saw one?
Many investors skip stock market research and lumber themselves with feeble funds. Stephen Spurdon reports
Sunday 25 July 1999
ou wouldn't dream of booking a holiday without being fairly sure it is going to be money well spent. Nobody opens a brochure at page one and books the first holiday they read about. It could be money down the drain.
et that is exactly what many people do when it comes to stock market investment. And they probably lose a lot more cash than the person who has picked the wrong summer break.
It is easy enough (and pleasurable) to research holidays but because stock market investment seems confusing, a collective madness descends. Many people really do buy the first investment they hear about, regardless of whether it suits them, or (more importantly) is any good.
Instead of undertaking a rigorous analysis they are swayed by advertising, or are lulled into a false sense of security by the fact that a fund is managed by a big name.
But even those who do some research before buying a unit or investment trust often leave them untouched within a PEP or ISA tax shelter without making regular checks on performance.
ou may well have invested in a "dog" fund, even if you don't know it. It is fiendishly difficult to make exact comparisons between similar funds. Just about anything goes in the name of marketing.
There is an easy way to cut through the cobblers. Get hold of BEST Investment's Spot the Dog survey. This highlights the worst performers and is put together by research analysts at BEST Investment.
The brand new edition of Spot the Dog is out today (see below). BEST's analysts identify those funds that have under performed their benchmark index (for example, the FT-SE All Share) in each of the last three years, highlighting funds that have consistently been poor performers rather than those that have been dragged down by just one bad or unlucky year.
This group is then filtered to identify funds whose underperformance over the total three-year period is greater than 10 per cent.
Jason Hollands, of BEST, says: "We stress you should never act on the basis of any form of league table alone - a new fund manager that has recently been appointed, for example, may turn performance around. But clearly if you hold one of these funds you should investigate whether or not you ought to transfer out of them."
BEST Investment offers a free review service for your PEPs, ISAs and other collective funds. It will print off a consolidated statement showing how all are performing, the total value (in real money, not units) and whether any of them are serious dog funds that ought to be sold.
Another good source for useful (and plain English) fund performance analysis is Premier Investment Managers. This company also offers the chance to invest in a range of "fund of funds" that are managed using its risk-adjusted analysis.
Jonathan Fry, the managing director of Premier, says: "We look not just at the performance but how that performance has been achieved - the volatility of the fund. As far as I am aware very few financial advisers or private clients tend to look at information in this way. They only look at pure performance. Our method helped us to identify early the problems with the Morgan Grenfell funds managed by Peter oung.
"People with PEP or ISA holdings tend to forget them, partly I suspect because they are put off by charges for switching funds or transferring to another manager. I say that they need a regular and systematic review of such holdings."
Standard & Poor's Micropal and Reuters' Lipper Funds, two important fund performance listing organisations, also have websites. In both cases funds come with a column detailing volatility. S&P Micropal has also got star rankings, measured on a monthly basis over 36 months.
Each fund is measured against the rest of its sector. The ranking is one to five stars, with five as the best.
ou can also access some performance statistics and a portfolio monitoring service through personal finance websites, including Moneyworld and MoneyeXtra and services from Hemmington Scott and CompuServe (see Hi-tech investor, page 8).
If you do not have internet access, Moneypounds acts publishes a monthly magazine Life & Pensions Moneypounds acts, which includes details of fund performance, supplied by Lipper Reuters Funds, and supplies the standard deviation figure. A one-off copy is pounds 10, annual subscriptions are pounds 68.
n For a free copy of 'Spot the Dog', call 0870 550 1112. For a free copy of Premier's current top 10 funds, phone 0800 212577. For Moneypounds acts, phone 01603 476100.
Websites: Moneyworld, www.moneyworld.co.uk; MoneyeXtra, www.moneyextra.com; S&P Micropal, www.micropal.com; Reuters Lipper funds, www.lipper.reuters.com
WOEFUL INVESTMENT TIPS
n M&G has had a bad time but the latest Spot the Dog guide has only three appearances from this big name (a record low). Editor Jason Hollands says there are real signs of improvement. But it is still worth checking how your M&G funds are doing compared with the competition.
n Equitable Life's Special Situations fund appears in every issue of the guide. It must be time to get out.
n The worst international fund is Lincoln's Global fund. This is yet another good reason not to buy your investment from a salesperson tied to one firm.
n Some former star performers, heavily sold by IFAs, are now in the dog tables. Old Mutual's European fund did brilliantly, but it lost its award-winning management team and has now lost its way.
n Some fund managers carry on advertising their funds after a top-performing team has left. Friends Provident lost its European team but continued to promote its European Growth Fund as a star. It is too early to say whether the fund's performance is badly affected.
THE WORST UK FUNDS
Over the last three years the FT-SE All Share has returned pounds 176 for every pounds 100 invested. These funds are way below that. All figures represent the return on pounds 100 invested bid to bid - which excludes the (often considerable) extra impact of initial charges
Return on % less than pounds 100 All Share Index
Equitable Special Situations pounds 122 31
Laurence Keene Spec Situations pounds 123 30
Barclays 500 pounds 124 29
ABN Amro Growth & Income pounds 125 29
Credit Suisse Fellowship pounds 126 29
M&G UK Equity pounds 126 28
Stewardship Income pounds 127 28
Abbey (Life) Ethical pounds 128 27
M&G Capital pounds 128 27
Fidelity Recovery pounds 129 27
30 June 1996 to 30 June 1999. All figures rounded to nearest pounds or % point. Source: BEST Investment.
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In less than three months' time radical changes to pensions will take effect, providing investors with more freedom. Yet for those who prefer to make their own investment decisions, the choice of funds available is overwhelming. And an income drawdown account is also not particularly easy to manage.
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I struck a chord with many of you when I wrote a piece earlier this week about rising train fares. It seems there is an army of travellers who feel they've been ripped off by increased transport costs.
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