A total of £14.5 billion of assets still sit in underperforming funds and multi-manager funds are emerging as the primary offender, according to the latest Chelsea Financial Services relegation zone report.
The list contains 101 funds, including 68 new entrants, and 24 of the underperformers are multi-manager funds.
Scottish Widows Investment Partnership (Swip) has the largest underperforming fund in the shape of the £1.1 billion UK Multi-Manager Equity Income fund. Swip recently announced a revamp of the portfolio, bringing in funds from Threadneedle, Neptune and PSigma and dropping Henderson, Jupiter and Rensburg.
Chelsea decides which funds are eligible for the list through a quantitative screening process. Funds that are third or fourth quartile each year for three consecutive years are eligible. (article continues below)
Darius McDermott, the managing director of Chelsea Financial Services, says the number of multi-manager funds on the list is no surprise given the extra layer of charges.
He says: “Multi-managers are always going to have to outperform their charges first. If the average total expense ratio charge is 2.5% they have to make that up before they get on a par.”
Among the underperformers are five L&G multi-manager funds, which are managed by Barclays Wealth. They include the Balanced, Multi-Manager Global Core, Multi-Manager UK Alpha 52, Multi-Manager UK Alpha and Multi-Manager US Alpha 52 funds, which have heavily underperformed in the past three years.
McDermott says: “The Barclays’ products are overly represented and I imagine they are aware of this as persistent offenders. It was also disappointing to see the introduction of the £46.9m Rensburg UK managers focus trust to the list given that it is managed by all their UK team.”