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Research highlights 'unacceptable' cautious fund underperformance

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The number of underperforming funds on Chelsea Financial Service’s RedZone list has fallen dramatically at the start of the new year.

However, the research also shows some of the industry’s most consistent underperformers hail from the former IMA cautious managed sector – which was the most popular sector with investors last year.

The total number of consistent underperformers in the RedZone, which looks at funds’ three-year returns, steadily rose across the course of 2011 but has fallen from 111 to 84 in the most recent ranking.

In addition, the amount of underperforming assets has declined from £20.34 billion to £12.86 billion. Chelsea attributes this to a turnaround in performance from some of the largest funds on the previous list.

Despite the positive headline results, Chelsea’s DropZone list – which shows the ten worst performers of the RedZone – includes four entries from the IMA Mixed Investment 20 per cent-60 per cent shares sector, which was formerly the cautious managed space.

Barmac asset management’s Castleton growth fund topped the DropZone after racking up a 35.71 per cent underperformance to the Mixed Investment 20 per cent-60 per cent shares sector average.

Other products from the sector found in the list include the Neptune cautious managed, F&C blue and Insight diversified high income funds.

Darius McDermott, managing director of Chelsea, says: “That a sector of funds deemed to be of limited risk can underperform by such a huge amount is simply unacceptable.

“Even more troubling is the fact that this sector has been one of the most popular amongst investors over the last few years, suggesting a large number of people could be holding dud funds in their portfolios.”

Figures recently published by the Investment Management Association showed cautious managed was the bestselling sector of 2011, attracting net retail sales of £3.4 billion.

Chelsea’s DropZone list also has appearances from the L&G UK special situations, Marlborough Far East growth, Aberforth UK small companies, L&G equity, Jupiter undervalued assets and SVM global opportunities funds.


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