Looking beyond the most popular names

Managers of such funds boast a long-term track record of consistent and lucrative returns, and a plethora of loyal investors unwilling to part with a more-or-less guaranteed supply of steady income.

So when these funds become so sizeable the products need to be soft-closed, or the manager is forced to transform his original strategy, a dilemma ensues. In some cases there are a range of alternatives available, but in others, particularly within less liquid or niche sectors, it can become difficult to find a viable replacement.

A timely example is the recent announcement of Aberdeen Asset Management’s soft-closure of its £3.7bn Global Emerging Markets fund, run by Devan Kaloo. The group is set to introduce a 2 per cent initial charge from March 11 2013, in an attempt to stem flows into the product. The closure presents a problem for some investors, as a common complaint from within the retail investment community is the lack of viable options within the global emerging markets (GEM) space.

Mr Bamford recommends using JP Morgan Emerging Markets fund as a suitable alternative to the Aberdeen GEM product. The fund has been managed by Austin Forey for more than 15 years.

“The fund had a good year in 2012, outperforming as a result of good stock selection decisions in domestic markets and being overweight in financials, with a consumer focus. With £1.1bn of assets, this fund should not face the same type of liquidity pressures as Aberdeen or First State,” notes Mr Bamford.

Ben Willis, investment manager at Whitechurch Securities, also recommends JP Morgan’s Emerging Markets fund and the £2bn Templeton Emerging Market Investment Trust, run by Mark Mobius, as alternatives.

“This is a trust [Templeton EM IT] that we have invested in and out of for some time and is one of the alternatives that can demonstrate a solid long-term track record, while the trust is currently running at a discount,” adds Mr Willis.

In contrast to the GEM sector, investors looking to invest in funds with an Asia-Pacific tilt have a more generous range of options available. So investors concerned over the soft-closure of First State’s £7.2bn Asia Pacific Leaders fund, for example, have a range of alternatives such as Aberdeen’s £2.5bn Asia Pacific offering, run by Hugh Young and Newton’s £3.4bn Asian Income fund, managed by Jason Pidcock.

On the fixed income side, industry behemoths include the £11.2bn M&G Optimal Income fund, managed by Richard Woolnough.

Paul Greaves, chartered financial planner at financial advisers Hart Greaves, recommends M&G’s £349.8m Global Macro Bond fund, managed by Jim Leaviss, as a “logical alternative” to Mr Woolnough’s Optimal Recovery fund.

“Using the M&G Global Macro instead of Optimal Income fund gives access to the same fixed income team but with a wider global mandate,” he says.

The £7.6bn M&G Recovery fund, run by Tom Dobell, is also a long way off from soft-closure, according to M&G, but Mr Willis notes there has been some speculation as to whether Mr Dobell will be able to continue to manage his Recovery fund effectively at its current size. One potential alternative suggested by advisers is the £762m Liontrust Special Situations fund run by Anthony Cross and Julian Fosh.

Periods of short-term poor performance in some high-profile offerings including the Invesco Perpetual Income and High Income products, both run by industry stalwart Neil Woodford, have also left some investors seeking out alternatives.

The £5bn Artemis Income fund, run by Adrian Frost and Adrian Gosden, provides a strong alternative, however it is still substantial in size.

But according to Gavin Jones, chartered financial planner at Old Mill Financial Group, concerns about size are dependent on asset class. “I do not have concerns about large funds that invest into liquid markets such as main market equities. However, several of the funds invest into emerging markets and lower quality corporate bonds markets that can become less liquid or completely illiquid at times,” he adds.

The wide, and ever-increasing, universe of investment funds means that although the soft closure of popular and successful funds can sometimes affect an investor’s portfolio there is likely to be some overlooked and smaller vehicle that provides as good, if not better, returns.

The key is to look outside the popular names and with the RDR requiring a whole of market approach from advisers, investment trusts should not be overlooked either.

Katie Holliday is a freelance journalist