PEPS: What if the returns are rubbish?

You can find out if your PEP is doing badly and shift to a new one, says Faith Glasgow

Investment is not simply a matter of ploughing a few thousand quid into a table-topping PEP and forgetting about it. As we're all reminded repeatedly, past performance is no guarantee of future returns. And the sad truth is that today's chart-toppers are all too often found languishing near the bottom of the performance league a few years down the line.

The difference in returns is not just a matter of 20 or 30 percentage points, either: the best- performing UK fund over the last three years, Exeter Capital Growth, put on 102 per cent, while the worst, Royal & SunAlliance UK Smaller Companies, managed just 0.61 per cent (source: Reuters Hindsight as at 26/2/99).

They don't do it on purpose, of course. But a fund may be hit hard by internal factors such as the loss of a star manager (a regular occurrence in an industry where rising stars are wooed with impressive salaries) or the takeover of the whole company, which may mean office moves, fund mergers, job losses or even changes in the fund philosophy. A successful fund may also find its winning investment strategy hampered by the amount of money it has attracted. Or market conditions may change dramatically and leave the fund manager in unfamiliar territory.

BEST Investment runs an illuminating Spot the Dog column in its quarterly investment newsletter (see below for details of how to get hold of a copy). Annual fund performance is measured against the relevant benchmark index. For UK funds that's the FT-SE All-Share, or the Hoare Govett for smaller companies. European funds are compared with the FT/S&P Europe.

If a fund has underperformed in each of the past three years, the level of under-performance over the whole period is calculated; if it is more than 10 per cent behind its index, it's classified as a potential dog.

But as Jason Hollands at BEST explains, such funds are not dismissed out of hand. "A bad set of figures throws up things that need to be investigated so that we can put them into context," he says. "For example, a fund may have a specialist bias towards, say, exporters, so a strong pound could cause it great problems for a while. But that is nothing to do with the quality of management."

UK funds well entrenched in the doghouse include M&G's former flagship funds, British Opportunities and UK Equity, which up to the end of 1998 had gained just 17 and 27 per cent respectively over the previous three years. Equitable Special Situations (12 per cent up) is another inmate.

The range of respected fund managers listed in the dog tables underlines the point that an investment house with several top performers won't necessarily shine across the board.

If you want to be sure your fund won't underperform the benchmark, buy a tracker.

Otherwise you should keep track of an investment. The fund manager will provide updates on performance, often indicating how it ranks against the rest of its sector. Top performers are also listed in personal finance magazines such as Moneywise.

If performance lags, changing your PEP manager is not difficult, and does not jeopardise the tax-free status of your investment. You will still be able to switch your existing PEPs around after 6 April.

One option is to switch funds to another in the same stable - if there is one that has a better track record and fits well with your investment aims and the other holdings in your PEP portfolio. This has the advantage of being cheap, or free with some managers, and also very quick: it's simply a matter of writing a letter of instruction to your manager or independent financial adviser (IFA).

If you don' t feel comfortable with the in-house alternatives, switch to another manager. This involves filling in a transfer form and sending it to your IFA or direct to the fund manager, who will do the rest.

However, it can take several weeks for the outgoing manager to sell your holdings and send a cheque to the new one who will re-invest your money.

You will have to pay for this. There may be an exit fee, and there will certainly be an initial charge because you are opening a new investment. Managers are keen to get transfer business, however, and many offer substantial discounts. Or go through a broker; BEST Investment says that its own transfer service usually costs around 1 per cent.

Don't change plans without good reason, or the charges will whittle away the tax advantages. But if your fund's performance is consistently below par, it makes sense to move away.

n For a free copy of the latest `Spot the Dog' list plus the BEST PEP & ISA magazine, call 0990 112255.

News
news

Emergency call 'started off dumb, but got pretty serious'

News
people

Britain First criticised for using actress's memory to draw attention to their 'hate-filled home page'

Arts and Entertainment
JK Rowling is releasing a new Harry Potter story about Dolores Umbridge
arts + entsJK Rowling to publish new story set in wizard's world for Halloween
Arts and Entertainment
Benedict Cumberbatch has refused to deny his involvement in the upcoming new Star Wars film
filmBenedict Cumberbatch reignites those Star Wars rumours
PROMOTED VIDEO
News
Russell Brand was in typically combative form during his promotional interview with Newsnight's Evan Davis
people

Thought you'd seen it all after the Jeremy Paxman interview?

Arts and Entertainment
On The Apprentice, “serious” left the room many moons ago and yet still we watch
tv

Greatest mystery about the hit BBC1 show is how it continues to be made at all, writes Grace Dent

Life and Style
tech

Voices
Funds raised from the sale of poppies help the members of the armed forces with financial difficulties
voicesLindsey German: The best way of protecting soldiers is to stop sending them into conflicts
Arts and Entertainment
A scene from David Ayer's 'Fury'
film

"History is violent," says the US Army tank commander Don "Wardaddy" Collier

News
The Edge and his wife, Morleigh Steinberg, at the Academy Awards in 2014
peopleGuitarist faces protests over plan to build mansions in Malibu
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
Luis Suarez and Lionel Messi during Barcelona training in August
football

Striker's four-month ban for biting an opponent expires on Friday

News
news
News
peopleFox presenter gives her less than favourable view of women in politics
News
George Clooney and Amal Alamuddin married in Venice yesterday
peopleAmal and George Clooney 'planning third celebration in England'
Property
One bedroom terraced house for sale, Richmond Avenue, Islington, London N1. On with Winkworths for £275,000.
property
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Data Analyst/Planning and Performance – Surrey – Up to £35k

£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

CTO / Chief Technology Officer

£100 - 125k: Guru Careers: A CTO / Chief Technology Officer is needed to join ...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker