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Sense of timing

Investors have chased performance but now seem to be wising up

The fund management industry has cleaned up its advertising act in recent years after the FSA decided that many promotions failed to tell the whole story. After all, a fluke year can easily offset four poor years and make a fund look decidedly better than it actually is and mask five-year numbers.

But while it is true that ads no longer scream perfor-mance, performance, performance, for most investors, it is the hard return on their cash that counts. Smoothing the ride and protecting the downside does not seem to count for too much.

It explains why the most popular funds tend to be the ones that have had a decent trot and the ones that are not are those funds that have disappointed. Unfortunately, investors often get their timing all wrong year after year.

It is always worth looking back at how popular Isa sellers have performed since because frequently they end up disappointing.

Go back five years to the best Isa sellers of 2006. They included several property funds such as Aberdeen property shares – investors who bought five years ago would still be sitting on a loss of 40 per cent. New Star property was another bumper seller thanks to an aggressive marketing campaign. Of course, New Star is no more but the fund is still around in the form of Hender-son property and savers have a long way to go to make a bean.

Even over three years, many Isa favourites will have disappointed investors.

Jupiter emerging Europe is another popular fund of late to have slipped. If you had bought it three years ago, you would be 7 per cent down. Other funds that have struggled to justify their sales include Allianz Bric – down by 1.4 per cent over three years – and JPM cautious total return, which is in the bottom quartile in its sector over one and three years.

The UK’s biggest fund, Invesco Perpetual income, and high-income funds have lagged its peers over the past three years. BlackRock absolute is another fund that, arguably many people bought at the wrong time.

The company admits that the fund will not perform at best during a bull market, yet most investors oiled in after the market had fallen and just as it was about to turn.

Such findings back up a recent study by The Cass Business School and Barclays Wealth which found that timing decisions by private investors since 1992 have cost them an average of 1.2 percentage points a year because they have chased performance.

Yet there is a case that if a fund is an untried and untested fund that investors should also proceed with caution. Many advisers decide to wait for a period of sustained performance before recom-mending a fund – others argue that if you lay down such a rule, you run the risk of missing out on the best returns of a star manager if you do not get in early.

It is why Jupiter absolute return, with Philip Gibbs at the helm, proved immensely popular last year. It raked in hundreds of millions, yet the fund is down by 1.4 per cent over the year and is sitting in the bottom quartile. Not the most auspicious of starts.

This year, no one style of fund is raking in all the money. The most popular funds this Isa season are a mixed bunch. There are emerging market funds, income funds, corporate bond funds, cash funds and even property funds making the top 10 best sellers.

I wonder whether this suggests that investors are finally getting wise to their previous faults?

Paul Farrow is personal finance editor at the Telegraph Media Group


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