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Investors miss out on the top funds

Billions of pounds are being left in underperforming funds as UK investors miss out on top-ranking funds, according to a report by Rowan.

Figures from the IFA and private client manager shows that many investors are not getting the best returns and are holding funds for the wrong reason.

The research from Rowan shows that in the UK equity income sector, 47 per cent of the total invested is held in top-quartile funds and in the UK smaller companies sector the top 25 per cent of funds have 34 per cent of the total invested in the sector.

But in the UK all companies sector, the picture changes dramatically with top-quartile funds attracting only just over a quarter of the investor’s money with the bottom quartile accounting for 16 per cent and the third quartile taking 32 per cent.

The report says in the past few years focus funds have risen in popularity together with funds at the other end of the spectrum holding more than 80 stocks.

Rowan lists its top-performing UK funds with a minimum three-year history. Leading the UK equity income sector is the Isis Stewardship income fund while Old Mutual UK select smaller companies is number one in the UK smaller companies sector and Fidelity special situations fund is top in UK all companies.

In the all companies sector, there is a total of 63bn of assets and 246 funds with three-year records.

The equity income sector has 23.5bn with 63 funds over three years old and the smaller companies has 7bn with 55 funds. An additional 6.6bn is invested in funds with a track record less than three years.

The diversity of the all share sector means that this needs to be taken into account, as some funds perform better in different market conditions but it points out that all funds have the same objective, to generate capital growth.

The Rowan research says: “Many people see part of the savings as an emergency or contingency fund but, without investing in the highest ranking funds, investors are not making their money work as hard as it could.

“It begs the question why investors are holding these funds. Were they advised to buy them, did they select them themselves or have the funds gone off the boil and investors simply not switched away? The fact remains that that assets within the all companies sector are not concentrated in the better funds.”


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