Rare rise in funds at risk of closure

This article is part of
Summer Investment Monitor 2017

Rare rise in funds at risk of closure
Number of red flag funds identified by Investment Adviser research

The number of ‘red flag’ funds identified by Investment Adviser as at risk of being closed or merged has seen a slight increase this year to 25, up from 23 in 2016 – the first increase since 2012.

Of the 25 funds in this year’s list – using data from Morningstar based on the metric explained on the following page – seven have appeared in the list for three consecutive years, while five have made an appearance for five consecutive years. 

Commenting on the list, Darius McDermott, managing director at FundCalibre, says some of the funds have appeared in the firm’s own RedZone research, adding: “The long-term underperformance and lack of assets only points to one thing – they should all be put to bed.”

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Since last year’s list, two of the funds flagged then have closed while three were merged with other funds due to their small size. Ten funds reappear from 2016, although some have been revamped. 

The Neptune Global Smaller Companies fund makes its third appearance in the list. Formerly known as the Neptune Global Special Situations fund, it changed its name and objective in July 2016, a move that might see it disappear from the list in the future should performance improve. 

The Barings Emerging Markets fund marks its second appearance, although assets have increased from 2016. The firm notes it continually reviews its investment capabilities, and points out that “Barings’ flagship EM investment strategies include multiple top-quartile performers”. 

Several funds have been renamed, with the ConBrio UK Smaller Companies fund, a long-term member of the list, now the Castlefield UK Smaller Companies fund. The team has overhauled the investment process, too.

Manager Alistair Currie says: “The introduction of this enhanced investment process appears to have had a positive effect as fund has outperformed the sector average in both 2015 and 2016. Unfortunately the disappointing performance in 2012, 2013 and 2014 continues to affect the five-year figures.”

The VT Munro Smart Beta UK fund has been renamed from the VT Smart Dividend UK portfolio, coinciding with a refining of objectives as the fund seeks to replicate the performance of the Freedom Smart-Beta UK Dividend Index. 

Robert Davies, lead manager for the fund, says it suffered due to quantitative easing, which devalued cash and revalued riskier assets. While small and mid caps fared well, the fund has a large exposure to large caps. He adds: “We have a process and value was out of favour for most of the last nine years, but last year was a great year for value which benefited us.”

This year’s list also sees some funds returning after a brief absence, including the S&W Deucalion fund and the Jupiter Global Ecology Growth Sicav.

A spokesperson for Smith and Williamson’s Fund Administration – the fund’s administrator, but not its investment manager – says: “This is a closely held fund, which operates in accordance with a specific mandate appropriate to its investors and, as such, would not look to outperform a benchmark.”