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British investors’ £4.2bn in zombie funds

British retail investors had £4.2bn in “dormant” funds – with “tiny” assets and inflows, but often high charges in the five years to 2017, according to Morningstar.

In a report the research and ratings agency found 194 such “orphaned” or “zombie” UK-domiciled funds – or funds with under €100m (£86.9m) in assets under management and “little-to-no-flows.”

The research warns these offerings often disadvantage investors from both a cost and performance perspective.

Scottish Widows group led the chart of providers with the most of UK-domiciled orphaned funds – with eight such offerings. Neptune Investment Management managed three funds with under €11.5m in each: Neptune Global Smaller Companies, Neptune Global Income and Neptune Quarterly Income, the last of which will be merged in another fund, effective from 1 April.

The most highly represented Investment Association sectors containing orphaned funds are Flexible Investment (25), Mixed Investment 40-85 per cent shares (19) and UK All Companies (16).

Almost 80 per cent of orphaned funds are neutral or negative rated, according to Morningstar Quantitative Ratings.

Morningstar UK director, manager research Jonathan Miller says: “The proliferation of investment funds in recent years has created significant challenges for investors as the sheer choice can be daunting.

“While investors need to make sure they are using tools and analysis to assess their investments, the onus is also on the asset management industry to provide offerings that are fit for purpose.

“However, there are currently far too many funds available to UK and European investors that are laced with high fees, are sub-optimal and delivering poor investor outcomes.

“Client suitability is a key part of MiFID II but, since its implementation in January 2018, there is unfortunately little evidence that orphaned funds are being weeded out. It remains to be seen if MiFID II can be the driver that brings the issues of orphaned funds to the fore by regulators. It is evident that investor outcomes are being affected, and this concern should get the wider attention it deserves.”

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There is one comment at the moment, we would love to hear your opinion too.

  1. Would be interesting to know how many of the funds are with firms who are closed to new business and how many of the investors are close to retirement or with small funds.

    Ultimately, it is the responsibility of their advisers assuming they are receiving advice.

    If they are not receiving advice, the question is why not.

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