New Star has merged its £8m UK growth fund of funds into its balanced £152.7m fund of funds portfolio.
Shareholders approved the merger of the UK growth fund a fortnight ago after a disappointing performance. It had pure equity exposure while the portfolio has 50 per cent in equities, 15 per cent in fixed interest and the rest spread across international equities.
Investors were told in a letter that they would have the option of reallocating their investments but that the fund of funds was the default option. New Star says the decision to merge was purely commercial since the fund had taken in only £8m in five years.
It is not the first merger in the Fof market. Earlier this year, Insight rationalised its emerging markets fund of funds into its Asian portfolio.
It says the performance of the fund was credible but once funds fail to grow past a certain size they become expensive to run and end up making risky investments.
Marketing director Rob Page says it was necessary to review the fund's long-term future.
He says: “There has never really been that much demand for specific nation funds. For this reason, we did not see a big future for the fund. The portfolio that it has gone into is predominantly UK anyway.”