Bloated billion pound funds dragging down investor returns

Research from investment data analyst Moneyspider.com reveals massive differences in returns from some of the UK’s biggest funds with at least £1 billion under management.

Investors stuck in the worst of these juggernaut funds run by some of the UK’s best known fund managers will be severely out of pocket, warns Moneyspider.com.

The company has applied its unique A – E (A denoting the top performers) rating to the best performing funds in the top ten best and the top ten worst performing investment sectors.

The results will give millions of investors food for thought, as the disparity in returns is in many cases startling.

Around a third (29%) of the £1 billion plus funds carry an A or provisional A (funds with less than five years’ data) rating – but a worrying 20% of these huge funds carry the lowest E or D rating.

In other words, investors saddled with an E performing fund will be losing far more money than the investor in a better performer in the same sector.

Among the very worse performers are some of the biggest names in UK fund management.

New Star’s giant property fund is down by a colossal 19.9% in the past 12 months, and even with the excellent performance of commercial property funds up until the sector’s sharp downturn in 2005, a £7,000 Isa investment in this fund would have limped to just £8,472 in the five years from Aug 2003 to Aug 2008.

The same amount invested in M&G’s Global Basics fund – up 166% over the same period – would have grown to £18,677.

The UK Corporate Bond fund managed by Scottish Widows, one of the UK’s largest with £2.6 billion under management, is a very poor performer, reflecting the continuing woes in the once hugely popular corporate bond sector.

“A quick glance at our tables reveals that the real stars at present are well run funds like M&G’s excellent Global Basics, but also the far lesser known boutique house BlackRock, in both the Specialist and UK All Companies sector,” said Moneyspider.com’s Tony Ahearne.

There are approximately 70 unit trust and OEIC funds with more than £1billion invested in them out of a total of around 2,000 funds rated by Moneyspider.com, and this top 4% in value terms hold approximately £138billion of investors’ funds, or around 38% of the total invested in all 2000 funds.

“Many investors will have been seduced into some of the big name funds on the back of powerful marketing material and cleverly talked up past performance figures,” added Ahearne.

“But the reality is that – as our research demonstrates – many of these big, lumbering funds are sinking under their own weight and are short-changing their investors.

“The answer is that investors need to compare their funds with others in their sector, and then crucially compare these sectors with different sectors on a regular basis in order to see where the best performers are.

“Putting blind faith in a fund manager’s powerful brand is simply not enough. Moneyspider.com empowers the investor to constantly monitor the performance of their holdings and to see which fund they should be in. And equally important which fund they should consider switching out of.”

Moneyspider.com has no registration fee and the service not only rates the performance of each of the client’s own funds but also shows a comparison with the top five funds in the same sectors. It also shows the top-performing funds from all sectors, so Moneyspider.com investors can see where the real profits have been.

“Keeping a close eye on your fund’s performance is crucial in these uncertain times - in rapidly changing market conditions, as we are currently experiencing, knowing how a specific fund in which you are invested is performing and – equally important – how other funds compare, is simply good financial common sense,” said Ahearne.