Major fund managers from houses including Jupiter and Neptune have fallen into Chelsea Financial Services’ RedZone of underperforming funds.
Funds that have produced third- or fourth-quartile returns in the past three years are placed in the RedZone of Chelsea’s tri-annual survey. The 10 funds with the greatest underperformance compared with their sector’s average return in the past three years are then highlighted in the DropZone.
Jupiter’s John Chatfeild-Roberts has seen his £848m Merlin Worldwide Portfolio fund fall into the RedZone, which has been joined by Neil Woodford’s £1.2bn St James’s Place UK High Income fund.
Paul Mumford’s £21.7m Cavendish AIM fund fell into the RedZone, but has also featured in the DropZone.
Neptune founder and chief executive Robin Geffen saw his £719.6m Global Equity and £2.6m Global Special Situations funds fall into the DropZone.
In June, Investment Adviser revealed Mr Geffen had suffered a performance lull on the Global Equity fund after it fell into the bottom quartile in five-, three- and one-year periods.
At the time the manager blamed “an uncharacteristic run of two consecutive disappointing years” in 2011 and 2012. Darius McDermott, managing director at Chelsea Financial Services, said the inclusion of the managers “may surprise” investors.
“Manager selection in [the Jupiter] fund of funds has been relatively good, but it has been heavily exposed to the long-term structural growth opportunities in emerging markets, which have underperformed their developed counterparts during the period,” Mr McDermott said.
He added that Mr Woodford’s SJP fund had “less investment flexibility” than his more well-known Invesco Perpetual-branded funds and “higher charges won’t have helped”.
Mr McDermott said the Alternative Investment Market, which Mr Mumford invests in, had “underperformed other UK market segments”.
“Given the peer group, it would suggest the underperformance is due to the market in general, rather than bad stock selection,” he said.
In total, 115 funds featured in the RedZone with assets totalling £33bn – up from 102 funds and £21.6bn in assets in the January RedZone.
Mr McDermott said Scottish Widows managed almost a third of the assets, while Legal & General came in second with £3.7bn and State Street third with £2.1bn.
He added that both Scottish Widows and Legal & General had seven funds each in the list, with HSBC behind them with four funds. Elsewhere, Mr McDermott said the IMA UK All Companies sector had the highest number of funds in the RedZone at 22 – more than half of which were tracker funds or enhanced index funds.
The IMA Global sector had the second most funds in the RedZone with 15, while the Mixed Investment 20-60% Shares sector came third with 11.
The worst performer in the DropZone was the Manek Growth fund, which has underperformed its sector average by 82.9 per cent in the past three years.
The fund was followed by Bryan Collings’s IM Hexam Global Emerging Markets fund, which has underperformed its sector average by 32.9 per cent in the same period.
Ignis’s UK Focus fund was third in the DropZone, having underperformed its sector average by 32.9 per cent and funds from F&C, Marlborough and Lacomp also featured.
“The RedZone identifies those funds that have consistently underperformed their peers in the past three years, to encourage anyone invested in them to at least take a look and see if they ought to switch their investments into something else,” Mr McDermott said.
A spokesperson for Scottish Widows said: “We take underperformance in any of our funds seriously. We recently repositioned our equities strategy and are beginning to see the benefits of this move across a number of these funds”.
