Pull the plug on bad PEPs

Research all the figures and transfer your fund to a better performer, says Faith Glasgow

When it comes to monitoring our investments, most of us are guilty of creeping inertia. Managers' reports arriving every six months might say that performance is no longer as sparkling as it was a couple of years ago but few people act as a result of the reports, comforting themselves that it is probably a temporary blip.

And indeed it may be exactly that. Transferring a poorly performing PEP to another manager involves both effort and money, so there is no point in panicking every time your fund slips a little way down the performance tables.

But ignore consistent disappointment at your peril - for even if your fund is not losing you money, you are missing out on potential gains. To put it in stark financial terms: over three years to 1 November, pounds 3,000 ploughed into the top-performing PEPable unit trust, TU European, would have grown by more than pounds 3,500 to pounds 6,692, while the same sum in the PEPable funds at the bottom of the league (Hill Samuel UK Smaller Companies, for example) had increased by pounds 158.

The important consideration, however, is not simply by how much a fund has increased, but how it is doing relative to its rivals in the same sector (according to tables produced by Reuters Hindsight or Standard & Poor's).

So it is fairer to compare Hill Samuel's fund with other PEPable smaller companies unit trusts. Duncan Lawrie Smaller Companies, the top performer among them, would have grown from pounds 3,000 to pounds 5,622, which indicates that Hill Samuel's fund, rather than the entire smaller companies sector, is where much of the problem lies.

Where can you track down this kind of information? Monitoring your PEP holdings is less of a challenge than it used to be as comprehensive performance tables are published in the Financial Times each weekend, and also in magazines such as Bloomberg Money. Or you can log on to sites such as www.moneyworld.co.uk or www.iii.co.uk.

Few financial advisers take an active role in highlighting poor performance, though; in fact the one independent financial ad-viser (IFA) to make a virtue out of this is BEST Investment, which names and shames the worst offenders in its quarterly "Spot the Dog" brochure, and offers a free PEP portfolio review service for anyone not certain how their holdings shape up.

BEST's dog funds are calculated by comparing performance against the relevant benchmark index (the FT-SE All-Share index for funds in the UK All Companies sector, for example). When a fund returns less than the benchmark over three consecutive years, the overall level of underperformance is calculated; if it is more than 10 per cent down on the benchmark, the doghouse looms.

Current dog funds include Equitable's Special Situations, a long-standing occupant, while Baillie Gifford British Smaller Companies has lost investors money over three years.

But the dog tables are designed as a starting point for further investigation - a warning light rather than cast-iron evidence of a failing fund. And they can be turned around by a change in investment discipline or management, as has happened at M&G (whose presence in the doghouse has fallen from five funds to two).

Before you make any decisions to transfer a disappointing PEP, therefore, it is helpful to know what a dip in performance may be caused by, as some changes tend to be more far-reaching than others.

Success itself is one possible factor. Good fund managers are a valuable commodity, and frequently poached; the loss of the key strategist can bring real problems for the remaining team members.

Success can also mean a fund attracts so much new money that it becomes unwieldy and slow to respond to market movements.

Company takeovers can also upset a fund's equilibrium as they may involve rationalisation or merging with another fund of quite different investment philosophy.

However, we, the punters, are not usually privy to such inside information. This is where a good financial adviser should have a marked advantage; they have industry contacts through which they are able to pinpoint likely reasons for a serious downturn in fund performance.

The bottom line is one of cost. Transferring PEPs between fund managers amounts to new business as far as charges are concerned, so you will pay 3 to 5 per cent in initial charges through your IFA. You may also pay an exit fee. Few managers do levy such a penalty, but it is worth checking. But if your PEP is a disaster, these costs of transfer will easily be outweighed over the long term.

However, a change of PEP need not be so expensive. If your disappointing holding is a weak link (perhaps in a struggling geographical sector) within a generally strong and reputable stable of funds, it is cheap and easy to switch to a better-performing fund from the same manager, which also suits your investment aims and attitude to risk.

Expect to pay no more than 1 to 2 per cent; some managers will allow you to switch in-house free of charge. Simply drop your fund manager a line and he will do the rest.

If you know where you want to transfer your PEP, do it through a discount broker who will rebate a chunk of the initial commission on the deal.

BEST Investment, Hargreaves Lansdown, Allenbridge and Chelsea Financial Services are among those that discount the entire initial commission on most transfers.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: DBA Developer - SQL Server

£30000 - £35000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Customer Service Administrator

£13000 - £15000 per annum: Recruitment Genius: Are you passionate about custom...

Recruitment Genius: Dialler Administrator

£22000 - £25000 per annum: Recruitment Genius: Main purpose: Under the directi...

Ashdown Group: Contracts Manager - City of London

£35000 - £37000 per annum + benefits : Ashdown Group: Contracts Manager - City...

Day In a Page

Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks
The haunting of Shirley Jackson: Was the gothic author's life really as bleak as her fiction?

The haunting of Shirley Jackson

Was the gothic author's life really as bleak as her fiction?
Bill Granger recipes: Heading off on holiday? Try out our chef's seaside-inspired dishes...

Bill Granger's seaside-inspired recipes

These dishes are so easy to make, our chef is almost embarrassed to call them recipes
Ashes 2015: Tourists are limp, leaderless and distinctly UnAustralian

Tourists are limp, leaderless and distinctly UnAustralian

A woefully out-of-form Michael Clarke embodies his team's fragile Ashes campaign, says Michael Calvin
Blairites be warned, this could be the moment Labour turns into Syriza

Andrew Grice: Inside Westminster

Blairites be warned, this could be the moment Labour turns into Syriza
HMS Victory: The mystery of Britain's worst naval disaster is finally solved - 271 years later

The mystery of Britain's worst naval disaster is finally solved - 271 years later

Exclusive: David Keys reveals the research that finally explains why HMS Victory went down with the loss of 1,100 lives
Survivors of the Nagasaki atomic bomb attack: Japan must not abandon its post-war pacifism

'I saw people so injured you couldn't tell if they were dead or alive'

Nagasaki survivors on why Japan must not abandon its post-war pacifism
Jon Stewart: The voice of Democrats who felt Obama had failed to deliver on his 'Yes We Can' slogan, and the voter he tried hardest to keep onside

The voter Obama tried hardest to keep onside

Outgoing The Daily Show host, Jon Stewart, became the voice of Democrats who felt the President had failed to deliver on his ‘Yes We Can’ slogan. Tim Walker charts the ups and downs of their 10-year relationship on screen