Equities  

Swip, Neptune funds among 32 on long-term ‘red flag’ list

Annual research from Investment Adviser’s Summer Investment Monitor has shown the number of ‘red flag funds’ - those at risk of closure or being merged away - has fallen for the second year.

The overall number of funds in the list – which were launched in 2008 or earlier, have assets under management of less than £10m and third or fourth quartile performance over five years – dropped from 58 in 2013 to 40 this year.

This suggests either funds are starting to pick up assets or fund houses are consolidating and overhauling their fund ranges.

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However, the research also showed that while the overall figure has dropped the number of vehicles that appeared on the list for two consecutive years has almost doubled from 18 to 32, including funds from big names such as Swip, Neptune, Marlborough and SVM.

The robustness of the methodology was further demonstrated by the fact that since the 2013 Red Flag Funds research, three funds identified in the list have since closed, a further three have been merged away and three have been renamed and fallen off the list.

Investment Adviser sought to identify ‘red flag funds’ – those vehicles that could face imminent pressure to be closed or merged with a sister fund – across the IMA sectors using data from FE Analytics and the following metric:

• The fund must have been launched in 2008 or earlier (and therefore have been through a full business cycle)

• It must currently have less than £10m in assets under management

• It must have ranked in the third or fourth quartile of its peer group in terms of its performance in a five-year period

Meanwhile the findings of the Investment Adviser ‘closet trackers’ research also recorded a decline in overall numbers, from nine to eight. Although these were spread across all four IMA sectors that were investigated, the IMA UK All Companies, IMA North America, IMA Europe ex UK and IMA Global Emerging Market sectors.

The majority of the potential ‘closet trackers’ sat in the IMA North American sector, while two funds, the HSBC Gif Euroland Equity and the Legg Mason ClearBridge US Appreciation funds made it onto the list for the second year in a row.

Some of the funds identified by the research, however, suggested that the seemingly high correlation to the index is not necessarily a bad thing, given the rally in markets over the past three years.

A full list of the funds can be found in this week’s magazine, while for more on the metric and methodology of the research, check out Investment Adviser’s Summer Investment Monitor.