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Failing fund gimmicks

Paul Farrow says fund managers’ new ideas or gimmicks rarely stand the test of time

There is a danger that when a fund manager tries to break the mould with the promise of something different that it all turns pear-shaped.

I recall going to a fund manager briefing at M&G’s offices more than a decade ago where journalists were handed a goody bag to illustrate a new twist to its underperforming capital fund. Nick Train, the M&G manager, had just been recruited from GT Global and that morning he waxed lyrical about Posh Spice.

He was going to focus his attention on stocks such as Gucci, Johnson & Johnson, EMI and American Express, which had a link to Posh Spice who had yet to marry Mr Beckham but was topping the charts with the Spice Girls.

“Posh Spice is every fund manager’s dream. Of the world’s 50 best-selling fast-moving consumer goods, 29 were launched before 1949. Of those, 13 were launched before 1900 so there is a familiar longevity for big brands,” he told us.

Not soon after, Train departed for pastures new and the fund’s remit was changed in 2005.

Then there was Merrill Lynch’s global titans fund. In 2000, the company invited people to “invest in 60 to 80 of the world’s biggest and most successful firms the titans of the future”. Investors never made a penny and the fund changed its remit in 2007.

There was also Aberdeen global champions as its sees an “an increasing demand for theme funds and for funds with a smaller, tighter portfolio of stocks.” The fund halved in value in next to no time.

Fund managers always try to steal a march on rivals with a so-called new idea or a gimmick and invariably they fail to stand the test of time.

It happens time after time, with New Star international property fund the latest to join the list of must-have funds to have fallen by the wayside.

I can remember more than a dozen sceptical journalists who were given a briefing at a private dining room at Claridge’s no less to mark its launch. Widespread scepticism did not prevent it from raking in a cool £300m within weeks and if you had invested £1,000 three years ago you would be left with a paltry £579.

The list of fallen funds is endless. Advisers might remember the Singer & Friedlander football fund, launched in a blaze of publicity with Alan Hansen in 1997. The company blew the whistle on the fund in 2001 because there were not enough clubs to invest in.

Or what about Schroders’ range of style funds launched at a “fashion show” by Salva-tore Ferragamo which closed just two-and-a-half years ago because of a lack of investor interest.

The latest “unique” fund to fall under scrutiny is the Skandia UK best ideas fund. It certainly had all the ingredients of a marketing man’s dream – select 10 highly rated managers and take their 10 best stock ideas and combine them into a single fund.

Three years ago, I wrote that it had defied its critics but warned that it was still early days. I am glad I did. The fund has performed poorly, not helped by its hefty 2.34 per cent annual charge.

If it carries on like it has over the past three years (it has fallen by 35 per cent), investors might be wondering whether the best idea Skan-dia’s marketing department should have had was to have kept the idea to itself.

Paul Farrow is personal finance editor at the Telegraph Media Group


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Julie – what do you think of this with regards to your fund?

  2. I agree and, as a general rule, steer clear of any new fund until it’s established a solid five year track record. Anthony Bolton’s new China fund may be a great success, but there’s nothing as yet to indicate that it’s going to outperform its established peers. Wait and see.

  3. Robert Donaldson 5th August 2010 at 5:51 pm

    Its the marketing gimmicks that get me. Paper aeroplanes, wobbly pencils, etc etc.

    Still keeps someone in a job!

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