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Swip tops the dirty dozen

Darius McDermott
McDermott: ‘Persistent offenders’

A total of £14.5bn of assets still sit in underperforming funds and multi-manager funds are emerging as the primary offen-der, according to the latest Chelsea Financial Services relegation zone report.

The list contains 101 funds, including 68 new entrants, and 24 of the underperformers are multi-manager funds.

Swip has the biggest underperforming fund in the shape of the £1.1bn UK multi-manager equity income fund. Swip rec-ently announced a revamp of the portfolio, bringing in funds from Threadneedle, Neptune and PSigma and dropping Henderson, Jupiter and Rensburg.

Chelsea decides which funds are eligible for the list through a quantitative screening process. Funds that are third or fourth quartile each year for three consecutive years are eligible.

Managing director Darius McDermott says the number of multi-manager funds on the list is no surprise, given the extra layer of charges.

He says: “Multi-managers are always going to have to outperform their charges first. If the average total expense ratio charge is 2.5 per cent, they have to make that up before they get on a par.”

Among the underperformers are five L&G multi-manager funds, which are managed by Barclays Wealth. They include the balanced, multi-manager global core, multi-manager UK alpha 52, multi-manager UK alpha and multi-manager US alpha 52 funds, which have heavily underperformed in the past three years.

McDermott says: “The Barclays’ products are overly represented and I imagine they are aware of this as persistent off-enders. It was also disappointing to see the introduction of the £46.9m Rensburg UK managers focus trust to the list, given that it is managed by all their UK team.”

Standard Life has three und-erperformers, courtesy of the £864.4m global index-linked bond, £602.8m global equity and £490.2m corporate bond funds.

McDermott says: “The corporate bond fund is a surprise as Standard Life is highly regarded in the fixed-interest space. However, we have not rated them in that area.”

Other leading fund managers to underperform include Scottish Widows and Axa.

The latest list has also seen a large increase in the number of poor performers in the cautious managed, Europe ex-UK and global growth sectors.

McDermott says: “It has been a difficult market. The recovery was led by lower grade equity companies in 2009 and that has now changed to more fundamental type firms. This survey does include 2008 when a number of high alpha managers got hit so the survey does encompass a number of varying markets.”

Among some of the other well-known funds within the sector is the Legg Mason US equ-ity fund managed by Bill Miller. The fund is the second-worst performer based on three-year cumulative performance, having fallen by 33.13 per cent.

The leading underperformer was the Elite Henderson Rowe Dogs FTSE 100, which fell by 33.64 per cent, while the MFM techinvest special situations fund was the third-biggest underperformer with a fall of 32.51 per cent.

Axa Framlington’s equity income fund, managed by George Luckraft, has now been joined by the monthly equity income fund in the relegation zone while Artemis European, managed by Philip Wolstencroft, has also joined the list.

McDermott says: “All these funds have now had a difficult three or four years and are in dire need of a sustained turn-round in their performance.”

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