Speaking on the release of the latest edition of the firm’s underperforming funds list McDermott said that, while funds in both the unclassified and specialist sectors were excluded from the list because the various funds therein were largely not directly comparable, the number of funds being categorised as unclassified is becoming a cause for concern.
“No fewer than 26 of the funds in the initial analysis (12%) were taken out of the final cut as they have been moved to the Unclassified sector. This mish-mash sector now contains 95 funds, which fund companies claim don’t ‘fit’ anywhere else.
“I am of the opinion that the Investment Management Association need to take a closer look. Some may well be in the only suitable place, but I can’t help but think that for others, it’s nothing more than a hiding place.”
According to Chelsea, 149 funds were included in the latest edition of the RedZone, its list of the worst performing funds over the last three discrete years, which have under management, total assets of almost £47bn, up over £10bn in the last six months.
The worst performing fund on the list remains the SF Webb Capital Smaller Companies growth Fudn, which is 111% worse than the sector average over three years. According to Chelsea, an investment of £10,000 three years ago in the fund would now have shrunk to just £4,919.65 today.
“To be fair, the incumbent manager was on the receiving end of a hospital pass,” McDermott said, “in the form of a portfolio of stocks that were hard to sell, and performance has got progressively less bad over the past two years, but that will be of little comfort to anyone who invested, and lost, the majority of their money.”
At a company level, Aberdeen tops the tables with seven funds in the list, four passive former SWIP strategies and three of its own funds.
But, as the group points out, much of this is the result of its purchase of Scottish Widows Investment Management earlier this year.
“Aberdeen has already rescued seven funds from the RedZone, with the migration of all SWIP-run active equity funds to the Aberdeen team,” Chelsea said, but added that the turnaround remains far from over.
In joint second place, were Fidelity and Investec, with six funds apiece, while from an assets point of view, BlackRock tops the tables with £8.4bn worth of assets in the Redzone.
In terms of sectors, unsurprisingly, the UK All Companies Sector contains the most underperformers, with almost £20.34bn of RedZone assets. But, Chelsea pointed out: only two equity funds account as much as two thirds of those assets: the BlackRock UK Equity Tracker Fund (with £8.26bn under management) and the M&G Recovery Fund (with £6.35bn).
Of the M&G fund, McDermott said: “We were a supporter of Tom Dobell’s for many years and it is sad to the fund languishing so badly.”
And, he told Portfolio Adviser, “While nearly every fund that falls into the RedZone gets a sell rating from Chelsea, we have retained our hold rating on the M&G fund because we believe there may yet be a chance of a turnaround.”
