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Second best

Chris Salih analyses the reasons behind the below-par returns on Skandia’s UK best ideas fund

Time has finally run out for a number of managers on Skandia Investment Group’s UK best ideas fund as it looks to turn round what is becoming a consistent under-performer.

The firm launched the best ideas brand in 2006 with a global and then UK offering. The concept of 10 fund managers investing in 10 of their best stock picks was well received but while the global best ideas and subsequent UK strategic and European launches have performed, the
failures of the UK best ideas fund have stolen the spotlight, which is not surprising when you look over the numbers.

Since launch, Skandia UK best ideas has been firmly fourth quartile inthe IMA UK all companies sector, losing 27.62 per cent compared with an average fall of 6.58 per cent for the sector, according to Morningstar. Skandia has always defended returns by calling for investors to look to the longer term.

It has now decided to cut back on the number of managers in the UK list from 10 to seven. Out go Jupiter’s Tony Nutt, River & Mercantile’s Dan Hanbury and Ignis Cartesian duo Andrew Kelly and David Stevenson.

SIG investment manager Ryan Hughes says: “The success of the other products has shown theidea does work but the UK has been a tough market and that fund has suffered. There have been phaseswhere it performed and times when it has suffered, with the final two quarters
of 2008 hampering performance in particular.”

’Perhaps placing more mandates with managers with stakes in the business, as we see with the boutiques, is the route to take’

Hargreaves Lansdown senior analyst Meera Patel says the fund has had its ups and downs, with outperformance in the first nine months, but the eye-opener has been the underperformance of the last year while markets have recovered. In the past 12 months, the fund is ranked 239th out of 308 in the UK all companies sector, returning 21.65 per cent compared with a 28.57 per cent average.

Patel says: “The argument went that the fund is a bull market product but the UK offering has continued to struggle in the midst of this bounceback and now the group has made more changes to the line-up of fund managers.” She also raises concerns that the size of the fund split between the 10 fund managers may affect its performance.

“These are meant to be the best fund managers the UK has to offer. They are all likely to run hundreds of millions, if not billions, and having to run a little over £14m may not be a major priority for them in the grand scheme of things.”

With only four of the original 10 managers still in place, Whitechurch Securities managing director Gavin Haynes questions their selection. He says: “Perhaps placing more mandates with managers with stakes in the business, as we see with the boutiques, is the route to take. The turnover of manager departures in just over three years has been too excessive.”

Haynes has never recommended the fund and says the concept of best ideas has its drawbacks. “The nature of the product is volatile as managers are likely to select best ideas from completely different areas of the market. That is a recipe for big mistakes as well as successes.”

Hughes says: “We acknowledge there have been problems with the fund but we are confident that recent changes will remedy that.

“If more changes are needed, in terms of both the number and names of fund managers, we will not hesitate in making them to ensure the fund succeeds.”


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