Pull the plug on bad PEPs
Research all the figures and transfer your fund to a better performer, says Faith Glasgow
Sunday 28 November 1999
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.
- 1 The BBC has just done more to eradicate ‘terrorism’ than all our wars since 9/11
- 2 Dog thinks owner is drowning in lake, dives in and tries to pull him out
- 4 Chilling drone footage captures Auschwitz ahead of 70th anniversary of liberation
- 5 Phil Neville backtracks on Tomas Rosicky 'I'd smash him' comments from Match of the Day 2
Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
Greece elections: Greek PM Alexis Tsipras takes aim at 'neo-liberal' Europe as country gears up for prolonged austerity battle
Auschwitz liberation 70th anniversary: Woman sent to three Nazi death camps describes surviving gas chamber
Pornhub star Mia Khalifa receives death threats after being ranked the site's top adult actress
Prince Philip set to be knighted by Australia: Celebrate by reading his greatest gaffes
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
Greece elections: Syriza and EU on collision course after election win for left-wing party
British Muslim school children suffering a backlash of abuse following Paris attacks
Islamic history is full of free thinkers - but recent attempts to suppress critical thought are verging on the absurd
Leaked documents show Ukip leaders approve NHS privatisation once it becomes more 'acceptable to the electorate'
iJobs Money & Business
£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...
£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...
£25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...
Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...