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A busted flush?

After pulling in masses of money back in the second half of 2006 and the early part of 2007 it appears Skandia’s best ideas notion has run into the wall as the credit crunch continues to loom over the industry.

Back in September 2007, Skandia’s £268m UK best ideas reached its one year anniversary with 12 months of top-quartile performance under its belt, while the global fund was 16 out of 71 funds in the active managed over the same time.

However, that picture has drastically changed, with the crunch taking all the snap out of an idea that at one point silenced almost all the doubters who had labelled them “gimmick funds”.

An analysis of 12 months performance figures now tells a fundamentally different story with UK best ideas currently fourth quartile over 12 months, falling 17 per cent compared to the 10.9 per cent average in the Investment Management Association’s UK all companies sector. Meanwhile, global has fallen by 7.8 per cent compared to a 4.6 per cent drop in the active managed sector.

As you’d expect their fall from grace is echoed in the performance of those managers asked to contribute 10 of their best stock picks to the fund.

Stephen Whittaker and George Luckraft are two names that have struggled in recent months having contributed their 10-of-the-best to the best ideas funds.

Skandia has called for investors to take the long-term view but if this market downturn is prolonged surely they will have to accept that a re-jig of these funds is needed as best ideas do not necessarily apply to each market.

One supporter who has not been deterred by the hit is Hargreaves Lansdown head of research Mark Dampier, who believes the nature of these funds has meant it has almost been impossible for them to steer clear of this volatility.

Dampier points to the struggles of the UK volatile to be largely thanks to mid and small-caps – where most of the ideas come from – being kicked to death. Small caps fell 11 per cent in November alone.

If these funds are to be kept on adviser hotlist such as the Hargreaves Lansdown Wealth 150, then Skandia is going to have to pay very close attention to the performance of these individual managers. It can be argued that up to now the notion has been a success, with similar offerings being launched the best argument for that, however if these vehicles continue to be so sensitive to market volatility, advisers may have to earmark them as suitable investments for a smaller circle of clients that can afford to take that volatility on board.


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