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Why older funds still have plenty to offer

The UK has a long history of offering a broad variety of funds, with product lines ebbing and flowing alongside investor dem-ands and interests. This has often been criticised as launches made for marketing reasons rather than investment ones. Yet many of today’s trends are just a repeat of those seen years ago.

Fund launches in areas such as China, commodities or technology or those with an absolute return style are not new concepts, they just appear that way because of the marketing and press attention they get.

Portfolios that survive the periods when their strategies are out of favour find they are well placed when attention once again returns to their space. This also gives advisers greater depth of choice in an investment area in which their clients are interested. Just look at the continued popularity and inflows into funds such as the £2.9bn Blackrock gold & general (opened in 1988) or the £2.7bn JPM natural resources (launched in 1965) funds.

While there have been plenty of good and solid new launches in these areas in recent years, those with long, proven track records are often the first point of call for interested investors. That is not to say all old funds are good and new launches are shaky but longevity has a proven case and it provides clients with some element of security.

UK buyers have a marked preference for funds with well-established track records even though the press atten-tion given to new launches may make it seem otherwise. Research from Lipper says the UK is unique among European markets in its preference for track records.

In examining sales and distribution data across Europe, Lipper separated purchase biases into two main categ-ories – new launches v older portfolios (backlist). The report states: “The UK was not only the most successful industry in 2010 but also the one with the greatest proportion of sales into backlist funds, accounting for 81 per cent of net sales.”

Lipper goes on to point out that backlist funds experienced a high degree of outflows in markets such as Spain, France, Italy and Germany, where banks and insurance groups play a dominant role in mutual fund distribution. Yet in the intermediary-dominated UK market, demand for backlisted funds beats new launches in every single year since 2002, bar 2008.

The Lipper research is not alone in its assertion of UK preference for longevity. Alliance Trust Savings has published a list of the 20 most popular investment trusts purchased in the first half of 2011 via its platform. Even the newest trusts featured have long track records, even those invested in areas many consider to be recent trends. For instance, the Ruffer Investment Company, ranked 17th most popular by Alliance, is run as an absolute return mandate and yet it was launched in 2004.

Topping the Alliance’s list are some of the most traditional trusts available, featuring not just decades-long track records but some dating back more than 100 years. Identifying open-ended funds with the oldest track records is more challenging as many have undergone radical alterations, including mandate, name and provider changes over the years. For example, IMA data says Barclays UK alpha Fund, launched in October 1957, is the longest-running portfolio in the UK all companies group. However, M&G launched the UK’s first mutual fund in 1931 and it was a UK equities portfolio called first British fixed trust. Over the years, it became M&G blue chip and in 2006 it was subsumed into M&G UK growth.

As the world has changed focus, so too have funds and that cannot necessarily be faulted. However, it would make advisers’ jobs easier if groups would stick with their propositions through the good and bad times. For instance, one of the industry’s first China portfolios was in the early 1980s but it closed after demand seized up after Tiananmen Square in 1989. Likewise, dozens of tech funds came into existence in the 1980s but less than a handful survived to be around when the 1990s’ boom took off.

As a result, funds such as Henderson global technology reaped the rewards of sticking around to the late 1990s, becoming one of the most successful funds in the UK market both in terms of asset gathering and long-term performance. Yet still the lesson was not learnt. After tech crashed in early 2000, many groups closed their newly launched tech offerings, leaving us once again with a handful of survivors who will be able to show a long-term track record when the tech bug bites once again.

There are many other examples of trend-oriented funds such as this holding out through the dips in their popularity only to benefit later. M&G recovery was the first of its kind in the 1960s. While it has gone in and out of favour over the decades since, over the past three years, it has rocketed upwards and now has more than £7bn in assets. Unsurprisingly, today, there are a number of portfolios using the name “recovery”.

Likewise, the volume of gold funds has increased in recent years. Yet the biggest is still one the oldest, Blackrock gold & general. Of the gold portfolios in the IMA specialist sector, CF Ruffer Baker Steel gold is the next biggest at £542m and it launched in 2003 followed by the £194m Investec global gold portfolio, which opened in 2006.

Many of the longest-standing funds are also solid performers and can justify their continued popularity. Fidelity European (£3bn), Gartmore China opportunities (£733m), Fidelity special situations (£2.78bn), JPM natural resources and Halifax UK growth (£4.2bn) are all among the top-performing portfolios over the 25 years to July 1, 2011, FE data shows. The top performer over that timeframe was Fidelity European with a gain of 3,560 per cent.

Going back as far as 1976, M&G recovery is the best performer, up by 15,123 per cent over the 35-year period to 1 July 2011, according to FE. JPM natural resources is ranked sixth over that time frame, giving investors a 4,876 per cent gain over the three-and-a-half decades.

Older funds may not immediately appear as trendy as some of the new launches of today but history has shown taste and fashion come around time and again.
Let’s hope a few of the recent fund launches decide to stick around even if their immediate appeal diminishes in the short term.


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There is one comment at the moment, we would love to hear your opinion too.

  1. I find interesting that in Europe which is dominated by banks and insurers they move people into ‘new’ funds.

    It would be useful to see how many of these ‘new’ funds are in-house. I think that fund managers should be very afraid post RDR as no doubt this kind of activity will occur as the masses are hoovered up by the bank assurers.

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