4th March 2014
Investment journalist Tony Levene looks at a famously poorly performing fund and asks what can investors learn?
The British – unlike those folk across the Atlantic – love failure stories. We adore yesterday’s hot celeb brought down to earth, even if it’s just a “cellulite” arrow. And we abhor efforts to airbrush flops out of sight.
We’re no different as investors. We avidly scour bottom of the table league placings – Chelsea Financial’s Red Zone is the most recent but there is also Bestinvest’s Spot the Dog computation (coming soon) and the more limited focus on income funds from Sanlam Private Investments with its twice a year white, grey and black lists.
Why do we love reading about these flops ? There’s “schadenfreude”, surprisingly we need a German word for our favourite activity of deriving pleasure from the misfortunes or mistakes of others, especially highly paid fund managers. There’s the hope that our portfolios don’t contain too many disasters. And there’s the comfort that we can often recite many of the persistent losers.
Chelsea’s list contains funds which posted third or fourth quartile returns in each of the last three years, a total of 151 funds, with combined assets of £35bn. Big names such as Scottish Widows and Legal & General are always good for a fair number of entries – and they don’t fail to disappoint this time. But many investors will be surprised by Fidelity’s place in the league of shame with eight funds including the near £700m Fidelity Multi Asset Strategic, and Schroder’s whose £3.7bn in red zone funds was only “beaten” by L&G which had £4.8bn in long term poor performers.
Aficionados of these lists know that the public relations departments of big fund managers can always spin one or two good funds. Scottish Widows, which might one day improve following its recent takeover by Aberdeen, once found a journalist an obscure but top performing £5m fund to counter accusations that its management was lacking competence.
And fans of these lists also know they can always rely on one “hot favourite” loser from well outside the orbit of big fund managers – the partially misnamed Manek Growth fund.
The Manek bit is accurate – it’s the one and only fund run by Jayesh Manek, a one-time pharmacist from London suburb Ruislip. But Growth?
Let its FE Trustnet record speak for itself. Manek Growth is in the UK All Companies sector. The latest figures show that over one year, it has gained 2.7% – against the average 19.4% (and the best in sector R&M UK Equity Long Term Recovery with 49.2%). Over three years, it is the second worst in this major sector with a 22.5% loss (the average fund gained 37.8% while Neptune Mid Cap made a table topping 94.2%) and over five years it is the worst with a 6.0% loss against an average 136.4% advance with a best performance from Standard Life’s UK Equity Unconstrained whose 400.6% proves that big insurers are sometimes capable of running good funds. The ten year figures – from Lipper – are just as depressing with a minus 7.78% compared with an average 118.4%. A blindfolded five year old sticking a pin into a share list would do better.
Manek scores highly for consistency, if nothing else. But investors can learn lessons from this fund.
According to FETrustnet, while he does not suggest he can recapture the performance in the Sunday Times competition, “ What he does promise, however, is hands-on fund management dedicated to producing capital growth over a long-term investment horizon.” It adds: “Over a long track record, the manager has, period by period, consistently underformed the peer group. Stockpicking has not really benefited results, which have tended to be relatively better in a falling market.”
Funds can go from top of the pops to bottom of the flops. Cox says that investors should stick with these trusts if their long term performance is good – it could be that their investment style or focus is out of favour for a time. M&G Recovery is an example of this.
And why do so many poor funds come from life insurance companies? It’s a mix of a one-firm sales channel through banks, a conservative attitude to investment which tends to towards third and fourth quartile performance, plus an internal culture which compares with other insurers rather than the wider market. But that’s all one for another article.