From Special Report: Investment Adviser Mid-Year Monitor
On the edge of closure
For a second year running, the number of IMA-listed funds in danger of closure or merging has increased
“For example, the HSBC Common Fund for Growth had a weak April, which sees it come in third quartile over five years – but if you measured it a month earlier at the end of March it becomes second quartile,” he explains.
“That said, a lot of these funds are likely to be past their prime and most probably do need to take a cold hard look at themselves in the mirror, particularly those that are routinely disappointing. One fund that has performed particularly badly is the Melchior UK Opportunities fund, which got severely carried out during the financial crisis and never really recouped its losses. At its peak this fund was more than £120m but now has shrunk to £4.9m.
“The recent turmoil has really taken its toll on a lot of funds, and too often managers have been hurt by being exposed to assets highly sensitive to market cycles but then missed out on the bounce by moving defensively at the wrong time – buying at the top and selling at the bottom.”
But while further consolidation in the industry is expected and in some cases needed, statistics from the IMA show that in 2011 there were 114 fund launches and only 43 closures or mergers, the smallest figure for five years.
Mr Willis notes: “Small funds will continue to operate as long as there is investor apathy and so the asset base remains relatively stable, with no sustained or significant outflows.
“It is mercenary, but as long as the fund can continue to be operational and the fund management group can cover the expense of running the fund and still make money from charges, then they will still be a viable proposition.
“However, with the RDR coming this has had a knock-on effect for underperforming funds and made fund management groups rationalise their fund ranges, resulting in cutting off some dead wood.”
Nyree Stewart is deputy features editor at Investment Adviser