Investors have over £34bn in persisently underperforming funds, according to research by Chelsea Financial Services, with the amount held in the 10 worst offenders jumping by more than 70 per cent since the start of year.
The firm’s triannual RedZone report shows 146 funds, with combined assets under management of more than £34bn, have suffered third or fourth quartile performance during the past three consecutive years. In terms of AUM, this is a 62 per cent increase on the £21bn witnessed in February.
Chelsea’s DropZone, which looks at the ten worst performers, has seen the collective assets under management swell from £377m in February to just under £650m today – an increase of more than 72 per cent. Eight of the ten are equity funds, which are joined by one property fund and one bond fund.
Jayesh Manek’s £21.9m Manek Growth fund tops the DropZone after underperforming the IMA UK All Companies sector’s average return by close to 53 per cent. According to FE Analytics, the fund is ranked fourth quartile over one, three and five years to 18 June 2013.
Chelsea managing director Darius McDermott says: “This is a fund that, in our opinion, investors should not hold. It is continually a member of RedZone and people can do better than that.”
Frank Manduca’s £12.1m UBS UK Smaller Companies is the second fund in the DropZone with underperformance of almost 38 per cent to the IMA UK Smaller Companies sector.
Bryan Collings and Grant Shotter’s £21.4m IM HEXAM Global Emerging Markets, Philip Nell’s £99m Aviva Investors Property Investment and Mark Mobius’s £15.2m Templeton Global Emerging Markets funds come in third, fourth and fifth places respectively.
Some of the funds found on the wider RedZone, however, are flagged by McDermott has having “extenuating circumstances” for their appearance.
“This time round, we think a couple of multi-asset fund ranges which find themselves in the list are worthy of mention,” he says.
“The first are three funds from Fidelity, managed by the very experienced Trevor Greetham: Multi Asset Defensive, Growth and Strategic. The issues with performance have been caused by the markets moving very quickly and as a result of political and central bank intervention, rather than market fundamentals. As markets have started to behave in a more conventional way in 2013, the performance of these funds has started to improve.
“The second range is that of Legal & General Multi Manager, run by Alan Thein and Tim Gardner. These funds have suffered from a large position in gold and gold mining equities, which have served as a hedge against the unprecedented amounts of monetary easing by world central banks.”
IMA UK All Companies is home to the largest number of duds appearing in the RedZone, with 26 funds from the sector being found on the list. Almost half of the underperforming IMA UK All Companies funds are trackers and hold 45 per cent of the assets in the RedZone.
Legal & General has the highest number of underperforming funds with nine appearing on the list. JP Morgan contributes seven offenders, while Scottish Widows and Fidelity take joint third place with five apiece.
However, Scottish Widows is the largest in terms of AUM – looking after £12.7bn in underperforming funds or more than a third of assets in the RedZone.