Some funds have attracted billions and market their funds hard, but Jamie Ware, managing director of Churchill Investments, says they are not all coming up trumps.
"The big names are letting us down. Perpetual, Schroders, Credit Suisse and M&G have not been performing well. When a fund gets as large as Perpetual High Income, it is like a giant oil tanker; it cannot turn around quickly or shift funds into smaller companies' shares when necessary."
One big player which is still performing well is Jupiter. Individual managers' styles are crucial to the success of these "mega" funds, according to Mr Ware: "William Littlewood, manager of Jupiter Income, is an exceptional manager who has not let success go to his head."
Mr Ware runs a managed "fund of funds" PEP, called Navigator, made up of 10 different top-performing PEP funds. This reduces investors' exposure to a single fund manager. At the moment Mr Ware picks Newton's Higher Income and Income funds and Britannia Asset Management's Higher Yield fund as his favourites in the Churchill PEP.
Paul Penny, managing director of the discount house Financial Discounts Direct, agrees that Jupiter is leading the big players in terms of performance, but defends Perpetual.
"Performance has suffered but it still has some good funds and is pretty well organised," he says. "The two who are resting on their laurels are Fidelity and M&G. Fidelity still lives off its name and is big because it advertises extensively. M&G is trying to turn things round but has not got there yet."
Of the promising performers, Mr Penny says Invesco's European Growth Fund is "coming on in leaps and bounds". He also likes the Newton's European Fund, which is "going great guns". For UK funds he recommends Jupiter Income, Newton and the Premier Dividend Fund run by Premier Portfolio Managers.
Discount houses such as Financial Discounts Direct sell PEPs and have the bonus of returning to the investor most or even all of the initial commission (see page 17 for more on discount brokers).
John Hutton-Attenborough, of independent financial advisers Berry, Birch and Noble, says he has traditionally put investors' money into the larger funds, feeling they offer "protection and security". Smaller funds sometimes have impressive growth but can be more erratic, he says. Even so, he, too, is concerned about the performance of Schroders and M&G. He picks Jupiter just ahead of Perpetual.
"Jupiter has had a couple of hiccups but that has got to be expected with so much money pouring into the fund," he says.
His tips are the Jupiter European Growth Fund, particularly for people with a lot of exposure to UK funds, and the Save & Prosper Premier Equity Growth Fund. He also likes the CGU Monthly Income Plus corporate bond PEP for investors wanting secure income.
Liz Crawford, an IFA, is less enthusiastic about the big players. She argues that some of the better performers have actually taken more risks and invested heavily in equities. "With the economy not looking so rosy, these funds could get hit harder by falling markets."
She recommends corporate bond PEPs for the cautious, including the M&G Corporate Bond and the CGU Monthly Income Plus. She also suggests the Legal & General All-Share Index Tracking PEP (see p19 for more on tracker funds).
Contacts: Britannia, 0845 605 0555; CGU, 0845 607 2439; Churchill Investments, 01934 844444; Financial Discounts Direct, 0500 498477; Invesco Fund Managers, 0800 010333; Jupiter Asset Management, 0171-314 7600; Legal & General, 0500 116622; M&G, 01245 390390; Newton Fund Managers, 0800 614330; Perpetual, 01491 416123; Premier Portfolio Managers, 01483 306090; Save & Prosper, 0800 829100.