Are You One Of The British Investors With £99 Billion Languishing In Underperforming Funds?

Chelsea Financial Services has published a list of funds whose performance has been towards the bottom of their sector for three years on the trot. The bad news is that Brits investing online have almost £100 billion (£99 billion) invested in funds in this ‘red zone’.

And the capital tied up in poorly performing funds is growing quickly – suggesting their marketing teams are doing a much better job than the fund managers. The combined value of the capital in the 230 worst performing funds as of the beginning of 2020 has grown by almost 50% in the past year.

Examples of funds in the 3-year performance ‘red zone’ include the Invesco High Income fund. Its manager Mark Barnett is a disciple of failed former star fund manager Neil Woodford and his performance has not been much better, with his fund falling to an overall 0.5% loss over the three -period. He also runs another Invesco fund, the Invesco Income fund, which is also Chelsea Financial Services’ report’s red zone.

Both funds have shifted significant capital into small and micro-cap stock over the past couple of years, which now make up over 30% of the holdings of each. Investors have, however, appeared to notice their investments have not been doing especially well. Around £100 million and £50 million a month is being withdrawn from the Invesco High Income and Income funds respectively. However, the High Income fund still controls £5.7 billion of capital and the Income fund £2.5 billion.

Other popular funds that have been trailing their sector averages enough to fall into the red zone include M&G’s Recovery fund, which controls £2 billion, and the £2.6 billion Hargreaves Lansdown Multi-Manager Income and Growth fund. The former has returned just 2.2% over the past year and manager Tom Dobell appears to have lost his touch after doing well over the early years of the 20 he has now been in charge of the fund. The Hargreaves fund was hit by the collapse of the Woodford Equity Income fund, which accounted 11% of its total holdings. It is currently being wound up at heavy losses for investors.

As an investment company, Aberdeen Standard is pinpointed as the worst overall performer. It has the most funds in the red zone, 15, controlling £7.6 billion on investment. Next in the list comes Invesco that has a total of 14 funds, with a capital value of £11.4 billion, in the red zone, followed by Schroders with 8, controlling £4.5 billion of capital.

The worst performing fund overall, based on its returns compared to its sector average, was the Schroder ISF Global Energy fund. It contrived to return 66% less than its sector average over three years. In second place came the Downing UK Micro-Cap Growth fund, underperforming by 54.3%, ahead of Guinness Global Energy, which underperformed its peers by 49.6%.

Chelsea Financial Services’ Darius McDermott recommends that investors monitor the performance of the funds they have money in on a regular basis – for example 2 or 3 times a year. If it is performing poorly he advises to “check whether the fund is still doing what it intended to do and then make your decision.”

It could be the case that the fund’s strategy is not unsound with a long term outlook but markets have simply conspired against it over the medium term. Investors should make a judgement call on if they have faith the fund will bounce back to recover over future years or the fund manager’s approach has been found out as misguided.