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European funds run by Schroder Investment Management and New Star Asset Management were among those struggling to perform last year, hit by extreme in and outflows of investors' cash, Standard & Poor's has claimed.

In particular, New Star's €179m (£133) GIF European Growth fund suffered from excessive cash swings with the funds assets growing from just €275m in 2006 to roughly €1.5bn in 2007, and then falling back to €277 in 2008.

Schroders' European range saw redemptions of up to 70 per cent over the year, which included the £84m European Dynamic Growth fund run by Andy Lynch.

Deborah Boys, Europe specialist at S&P Fund Ratings, said: "Over the year a lot of funds in the European sector suffered large redemptions and this led to liquidity problems within the sector. With Schroders a lot of their European funds had shared holdings in small caps."

Ms Boys speculated that much of the cashforthe New Star fund was invested in financials, in the view that the sector was making a comeback. However, when this did not happen the fund's performance fell further and redemptions continued.

"Overall the thing that most tripped up fund managers this year was finding the right moment to go back into banks," she said. "Many thought it was back in November, but this ultimately ended up backfiring on them."

However Richard Wilson, marketing director at New Star, said this was only part of the story.

"A combination of negative market sentiment and short-term underperformance resulted in an increase in redemptions during the second half of 2007," he said.

"The fund has held a mid-cap industrial cyclical bias for some time. While the stocks held were deemed fundamentally sound, the sector was indiscriminately sold-off amid credit concerns and general market pessimism.

"As a result of this anomaly, however, the fund’s underperformance remained short-lived, as mid-cap industrial cyclical stocks have rebounded strongly. The fund’s short-term performance is back in the top decile over both three months and six months.”

James Cardew, a director at Schroders, also defended the firm's funds. "While the funds have experienced outflows in 2007, this has been a general market trend over the year," he said. "The industry outflows for European equities was €63bn for the 12 months to March 2008.

"However, flows have stabilised in both funds in 2008 even though the industry has continued to see significant outflows. The European Dynamic Growth still has a very strong performance track record and has been in the first quartile for each calendar year, with the exception of 2007, since Andy Lynch took over managing the fund in September 2002."