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Dogged by misfortune

After being clobbered by performance and asset bleeding in 2008, the last thing fund managers wanted was advisers rubbing salt into their wounds. Cue the latest instalments of Chelsea Financial Services’ Relegation Zone and Bestinvest’s Spot The Dog.

Both firms analyse fund performance over three-year terms. Bestinvest highlights 82 dog funds that failed to beat their benchmark in each of the last three years while underperforming the index by at least 10 per cent in that time. Chelsea uses a quantitative screening process, with funds coming third or fourth quartile each year for three consecutive years eligible. Its 70-plus list represents total assets under management of £11.16bn.

Certain names are prominent in both lists, including Scottish Widows and its investment arm Swip. Scottish Widows corporate bond fund is the biggest fund in the Chelsea list at £2.19bn while the two firms’ four Japan funds are all in the Bestinvest list.

A Swip spokesperson says: “Bestinvest’s assertion that ’12 per cent is the percentage total group value of FUM’ is derived from AUM of a particular universe of funds, not total FUM. This phraseology is very misleading. The value of Swip retail funds mentioned in Bestinvest’s survey has consistently represented less than 1 per cent of Swip’s total funds under management. Also, over half of all funds in the Japanese equity sectors are deemed dog funds in this report. It could be argued there is a sector issue rather than fund-specific issues.”

Other notable names in the lists include Henderson, Legal & General, Fidelity and Invesco Perpetual. JP Morgan also appears in Spot The Dog with its premier equity income, global and Japan funds.

Bestinvest senior analyst Adrian Lowcock says: “JPM and UBS both have such a strong reputation in investment management, so to see them on the list was a surprise, given they are traditional investment managers. I do think investors will be more concerned with JPM having a fifth of its funds qualify for the list as it has a greater number of assets and clients involved.”

Fidelity features in both lists, the notable inclusion being the £748.3m wealthbuilder fund managed by Richard Skelt, which was the second biggest fund in Chelsea’s Relegation Zone.

The £378m UK growth fund was highlighted as a leading dog by Bestinvest. Fidelity head of IFA channel Peter Hicks says: “It has been consistent and has performed well over one and 10-year timeframes. Where it had its difficult time is between 18 months and two-and- a-half years ago when markets were still bullish but it has begun to do well again. The important thing for us is that it performs in the long run.”

UK equity income funds feature prominently. Hargreaves Lansdown investment manager Ben Yearsley says: “UK equity income is an extremely competitive sector and underperforming does not instantly make you a poor manager, especially when you consider the troubles going on in that sector with the likes of the banks.

“We recently took George Luckraft’s Axa Framlington equity income fund off our Wealth 150 list, not because he is a bad manager but because small-caps are not working at present. Not buying a fund does not mean selling out of it.”

Spot the Dog highlights extreme levels of volatility in Japan, with 25 dogs, representing 56.8 per cent of funds in the sector and £1.6bn in underperforming assets. Lowcock says: “It is the most volatile of markets and its nature makes it one of the longer-term investments. Investors can look to access the market via the likes of trackers and even structured products if they are keen for access.”


Adviser Fund Index

Commodities are set for a tough 2009, according to the Economist Intelligence Unit. In its quarterly report, published earlier this month, the EIU forecasts a 41 per cent fall in its Industrial Raw Materials index this year.

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