Survey of ‘poorly’ funds reveals Scottish Widows’ funds have drastically underperformed for investors over last three years
Investors have £10bn in Scottish Widows funds that have drastically underperformed in each of the last three years, according to a leading investment adviser.
Darius McDermott, managing director of independent financial adviser Chelsea Financial Services (CFS), said that Scottish Widows’ managed funds dominated his firm’s survey of poorly funds, representing the highest number managed by one company – seven – on its list.
The CFS Red Zone survey identifies the worst-performing funds over the last three discrete years, while the Drop Zone highlights the worst of the worst: those that have underperformed their sector averages over the cumulative three-year period to 1 August 2012.
Among Scottish Widows’ seven funds are three Halifax-branded investments: the UK FTSE 100 Index Tracking, UK FTSE All Share Index Tracker and UK Growth funds.
Not all of the funds have lost investors money but they could have had better returns had they chosen different fund managers. Standard Life and JP Morgan came joint second with six funds on the list of worst performers.
McDermott said: “These companies run a large number of funds so you would possibly expect them to have a few more underperforming funds lurking around. It doesn’t mean this performance shouldn’t be addressed though, and perhaps begs the question whether these companies should concentrate on areas where they excel, rather than trying to be all things to all men.”
McDermott said that Scottish Widows was trying to tackle some of its performance problems by adopting an “enhanced index strategy” for some of its actively managed funds. “Hopefully this will pay off, but the funds on our list are so far not included in these plans,” he said. “£10bn represents a huge number of investors who should expect a lot better from those to whom they entrust their savings.”
The worst performing fund was Manek Growth, which underperformed its sector average by 68% during the past three years. The fund is managed by Jayesh Manek, who after winning the Sunday Times Fantasy Fund Manager competition in 1994 and 1995 started a unit trust with £10m seed money.
By 2000, the fund was worth nearly £300m, but collapsed when the dotcom bubble burst and has performed poorly ever since.
CFS said that Manek Growth has managed to lose its investors more than 34% in the last three years, compared with an average positive return of 33%. It is followed by UBS Smaller Companies and Allianz Global Eco Trends, which have underperformed their respective sector averages by 49% and 41% respectively.
However, the most notable inclusion in the list of poor performers is the £2.3bn Fidelity Special Situations fund, managed for the last four years by Sanjeev Shah after its previous manager Anthony Bolton moved to Hong Kong to concentrate on the Chinese market.
Shah initially struggled to maintain the fund’s stellar track record and it dropped into bottom quarter of the UK All Companies sector, but performance has improved in the last 12 months and it has moved into the first quartile, growing by 20.7% compared with an average of 14% for the UK All Companies fund sector.
McDermott said: “Our analysis, frankly, makes for pretty depressing reading and I can only urge anyone invested in these funds to consider whether they want to remain invested or switch as quickly as possible to a better fund.
“The only exception I would make is Fidelity Special Situations. I’ve been a long-term fan of this fund and I’m pleased to see that shorter-term performance year to date has been good and hopefully signals the beginning of a turnaround.”
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