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Sterling effort

And the 2009 award for ‘the most misleading fund name’ goes to… Standard Life, for its sterling pension fund.”

The trails and tribulations of the Standard Life fund once again highlights that a fund name can give the wrong impression and ultimately let investors down. Investors need to look under the bonnet of the fund before investing.

Recent events have shown that you cannot take any fund name for granted. Take structured products, for instance. Many have given the impression that your investment is safe have let investors down following the collapse of Lehman Brothers.

A few thousand Legal & General investors were caught out, that’s for sure. L&G, whose capital protected & growth plan was exposed to Lehman Brothers, argues its plans were never sold as guaranteed equity bonds and it was made clear in the product literature that if any of the five “A-rated” banks backing the investment ran into difficulties, then investors’ capital could be at risk.

That’s as maybe, but the name does not suggest your money is at risk.

They have been numerous warnings about structured products but investors still seem to get confused on knowing which products have a cast-iron guarantee or which offer only a degree of protection.

With a capital-protected plan your money is invested in derivatives provided by banks such as Lehman’s, whereas if your capital is guaranteed, you would assume it is in a deposit account ready to be returned in full at the end of the term.

However, investors that lose out on a structured product perhaps have themselves to blame – the risks are detailed in the small print and there have been numerous warnings about their complicated nature.

On the other hand, advisers and investors have every right to be up arms with the behaviour of the insurers that are marketing funds as “cash” yet are anything but. It is misleading in the extreme.

No wonder the 97,000 or so investors who poured £2bn into the Standard Life sterling pension fund were less than impressed when they discovered that 13 per cent of the fund was invested in toxic debt.

Yet Standard Life is not the only fund manager to have a cash fund that has lost money. Cash funds offered by the Pru (named Cash Haven Trust, would you believe?) and Clerical Medical have also lost money because they have been exposed to mortgage debt.

Standard Life was applauded for “doing the right thing” and agreeing to compensate investors to the tune of £100m to offset the 5 per cent loss. One adviser even said the insurer “should be congratulated” for admitting its literature did not make it clear how the fund was managed. I can’t agree.

Initially, the insurer argued there was no case for compensation. It was only after investors and advisers vented their anger that it began to backtrack.

A cash fund should be a safe haven where you cannot lose money. If it isn’t, then it should be clear your money is at risk.

Mind you, Standard Life may have picked up my 2009 award but it still doesn’t beat my 2005 winner, NPI.

Back then, it was forced to compensate investors after it failed to mention that its property fund had not held any property investments in the fund for at least two years. Instead, the money had been held in cash. Priceless.

Paul Farrow is digital personal finance editor at the Telegraph Media GroupMoney Marketing

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