F&C and New Star have the most funds on an adviser’s list of underperforming vehicles.
Last year, Informed Choice set up the LemonAid report, a biannual survey of “lemon” funds, named for the “bitter taste” they leave in the mouth of investors.
April’s survey identifies 327 funds that Informed Choice believes are in need of urgent review.
Martin Bamford, the joint manager director of the firm, says: “This … should act as a call to action for both investors and any lazy advisers who are not providing a regular review of client assets. There are superior alternatives available in each asset class and modern financial products make it cheap and easy to switch.”
Informed Choice “spots a lemon” by filtering 5,000 funds to identify those that have failed to achieve above average performance over one, three and five years. The funds must have a five-year track record to be included.
Once this screening is complete, the funds are ranked on number of gain and loss years, fund size, quartile rankings and measures of volatility and risk-adjusted returns.
The worst offenders are those that score below 40% and are given three lemons. Between 40% and 54% gains two lemons and the maximum score is between 55% and 70%, earning a single lemon.
New Star had 17 funds on the list, eight of which had three lemons, including funds in the managed sectors, Strategic Income, Equity Income, Higher Income Select Opportunities and Hidden Value.
Bamford says: “If you group the New Star funds with Henderson’s you have an even larger number. There are obvious reasons why New Star funds have suffered but I think things will improve once they all come under Henderson.”
Meanwhile, F&C has 16 funds on the list. Only three of these were among the worst offenders, which were European Dynamic, Multi-Manager Investment Trust and Special Situations.
Bamford says the problem is that F&C have a vast number of funds across a wide range and, therefore, there may be a lack of focus.
He also pointed to several higher-profile funds that, rather surprisingly, made the list. Old Mutual’s Corporate Bond, managed by Stephen Snowden, earned three lemons, but Bamford says this could be down to the fact Snowden moved part of his portfolio to manual pricing last year.
Liontrust’s First Income was also awarded a lemon. The fund that has featured in the press and is due to undergo a manager change in the next few weeks after the departure of Jeremy Lang and William Pattisson.
Bestinvest lets the dogs out