Investors collectively have more than £101bn in under-performing funds

28th September 2015


Investors collectively now have more than £101bn languishing in under-performing funds, according to research from Chelsea Financial Services.

The amount of funds in the broker’s RedZone, which names and shames the portfolios that are failing investors, has  swelled significantly since its last count in May, when it found there was £48.5bn in poorly performing vehicles.

The number of funds in the list has jumped too, from 143 to 239.

Darius McDermott managing director at the group said: “Both figures are a huge increase on May’s numbers, and a worrying sign that consistent underperformance, as opposed to one or two bad patches, is on the rise. It seems that those who are struggling are finding it hard to turn things around.”

The list names the worst-performing funds over the past three discrete years and each portfolio in the list has produced third or fourth quartile returns each year.

Looking at individual sectors, UK All Companies fared worst with 44 funds and around a third of the assets, at £36.63bn. Global is second with 25 funds and £6.97bn while UK Equity Income came third with 14 funds and £7.68bn.

As was the case before the summer, the UK All Companies sector is dominated by trackers, in the RedZone. Both the number of funds and assets have grown, from 20 to 27 and from almost £20bn to £27bn.

The Chelsea DropZone brings funds to your attention which are from the RedZone and have underperformed their sector averages by the largest amount over the cumulative three-year period.

Rank Fund % underperformance from sector average*
1st SF Webb Capital Smaller Companies Growth 88.43%
2nd HC FCM Salamanca Global Property 69.23%
3rd Elite Charteris Premium Income 39.18%
4th S&W Ilex Income 38.48%
5th TM Progressive UK Smaller Companies 38.21%
6th M&G Recovery 35.45%
7th Aberdeen European Smaller Companies Equity 34.19%
8th Aberdeen World Equity Income 32.39%
9th Sanlam Global Best Ideas 30.54%
10th TU Unit 29.65%
*Based on three-year cumulative performance

On a positive note, of the 30 Investment Association (IA) sectors examined, only two have had negative average cumulative performance over the past three years: IA Global Emerging Markets -4.87% and IA Global Emerging Market Bond -7.59%. Every other sector has, on average made money for investors, especially smaller companies, which made up the top four sector averages:

Templeton had both the best and worst performing funds in the IA Global Emerging Markets sector: Templeton Global Emerging Markets lost 25.83% of investors money over the three years, whilst their Emerging Markets Smaller Companies fund increased in value by 28.90%.

McDermott continued: “The difference between good and bad active management is worth highlighting. Take the IA Asia ex Japan sector, for example. The worst fund, Tiburon Taipan, lost 10.97%, whilst the best fund, Elite Rated JOHCM Asia ex Japan Small & Mid Cap, returned 49.74%. On a £15,000 ISA investment that’s the difference between having a savings pot today of £13,354 or £22,461.”

Legg Mason was the investment house to reckon with, however. Two out of the top three performing funds belonged to their stable:

McDermott concluded: “Smaller companies – with the exception of the Webb Capital fund – all over the globe, really have been the place to be over the past three years. It’s a theme that runs through every part of this data.”

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