Abrdn’s latest assessment of value (AOV) summary has flagged 10 funds that are not delivering for investors.
The AOV was introduced in 2019 by the Financial Conduct Authority to ensure asset managers act in investors’ best interests.
Included in the latest report were 76 funds, with each assessed for quality of service, performance and costs. They all made the grade when it came to quality of service and cost, but 10 failed to meet the performance criteria.
Abrdn’s interpretation of the FCA requirements is: “[…] performance against targets, risk monitoring, whether relevant funds have delivered income and if they have generated growth on investment for clients.”
Below are the 10 funds flagged in the AOV, with fund and performance data sourced from FE Trustnet.
ASI World Income Equity Fund
The £29.9m fund is solidly first quartile over three, six and 12 months – but plummets to fourth quartile over three and five years. Since the previous AOV, there have been “various updates to the investment process to better improve the fund’s research”, Abrdn said.
“The fund delivered improved performance over one year to the end of October, generating returns ahead of its benchmark index; the MSCI ACWI High Dividend Yield Index.
“Overall, positive stock selection was the main driver from both a regional and sector perspective. The US was the best performing area as a result of stock selection. […] The lack of exposure to Japan was another positive contributor to relative performance.”
ASI American Income Equity Fund
The £170.1m fund aims to keep exposure to dividend yield at a premium and only invests in dividend paying stocks. “This typically provides more stability in market downturns through exposure to high dividend payers and not owning non-dividend payers, this has been the major driver for the underperformance of the fund relative to the benchmark (S&P 500),” Abrdn said.
ASI American Unconstrained Equity Fund
The £63.2m fund has underperformed its benchmark S&P 500 index over the last three years. “Performance had been strong for the majority of 2021, however a sharp reversal occurred in Q4 2021 on the back of concerns on the US economy with heightened inflation in tandem with the predicted spread of the Omicron variant of Covid-19,” the asset manager stated.
Beyond the recent quarter, “the underperformance on a three-year basis is attributable to positioning in some of the largest index constituents and the success of the fund’s conviction list (best stock ideas), the latter of which is the most influential area of focus when considering the performance of the fund going forward”.
ASI Global Focused Equity Fund
The solidly fourth quartile-ranking £116.9m fund has trailed its benchmark across every standard timeframe for the past five years. The asset manager attributed the recent underperformance to the Chinese regulatory environment – specifically as it impacted Ping An, Tencent, Las Vegas Sands and Alibaba.
The fund has been trimmed from around 50 holdings to 25. “This change is intended to ensure the majority of the portfolio is sourced from what historically has been a strong source of outperformance, namely the equity team’s highest conviction stock ideas,” Abrdn said.
ASI Global Income Equity Fund
The £130m fund bounces between the second and third quartiles over the standard timeframes and has a somewhat cat and mouse quality when compared with its benchmark.
Abrdn said: “The performance challenges the fund has faced can be explained in large part by the persistent performance of low-yielding large capitalisation technology stocks, particularly those listed in the US. For example, not owning Tesla, Google and Nvidia cost the fund around 2% in relative performance in the year to 31 October 2021.”
ASI UK Growth Equity Fund & ASI UK High Alpha Equity Fund
Similar changes were made to the £99.7m growth equity and £83.3m high alpha equity funds in September 2020, including investment process enhancements and personnel changes. Their performances improved but the longer-term number “remain challenged”, the asset manager said.
The funds moved to one manager and portfolio construction was simplified, increasing exposure to the teams’ highest conviction ideas. But “performance suffered in the second half of 2021, primarily in the fourth quarter, driven largely by the team’s stock selection”.
ASI High Income Equity Fund
The decision last year to maintain the £360.5m fund’s exposure to more cyclical parts of the market while also protecting income “has proven to be an effective strategy”, Abrdn said. Having outperformed the FTSE 350 Index by 6.07% as of October 2021, it also outperformed the benchmark index through the early weeks of 2022.
The fund offers a bias towards rising bond yields and “is expected to perform well in an inflationary environment due to exposure to financials, commodities and real assets”, the asset manager added.
ASI UK Income Unconstrained Equity Fund
Thomas Moore’s £681.6m fund had a strong 12 months after enhancement were made to the investment process last year. It benefitted from heavy exposure to economically-sensitive sectors such as consumer discretionary, which was the largest contributor to performance. Limited exposure to defensive sectors also helped performance, as did underweight positions in healthcare and consumer staples.
ASI Dynamic Distribution Fund
The £150.6m fund has shown “incremental improvement relative to the IA 20-60% Mixed Asset Shares sector over rolling 12-month periods”, Abrdn said. These have been driven by “solid fund selection and the use of a new model that has improved asset allocation”.
See also: ASI revises performance targets across equity income funds
