Underperfomers in Relegation Zone see assets swell by £1bn

The UK’s worst-performing funds have seen their assets swell by £1bn since the start of the year, research from Chelsea Financial Services shows.

Chelsea says assets in its Relegation Zone of underperforming funds now stand at £14bn, with market volatility pushing the number of funds into its list from 79 to 85.

The largest of the laggards is the £1.6bn Scottish Widows UK Growth fund, which also featured in the last Relegation Zone, published in December. This fund has fallen 12.4% over three years compared to an average fall of 8.5% among its peers, yet £17.5m has flowed into the fund since the start of the year.

“The correlation between underperforming funds and increased asset inflow needs to be broken; inertia remains the biggest destroyer of returns,” Chelsea managing director Darius McDermott says.

“The largest six funds in the Relegation Zone account for 40% of underperforming assets. This is too much money underperforming for far too long. Investors need to ditch these duds if they are to maximise portfolio returns,” he adds.

Chelsea’s publication echoes similar research from Bestinvest. The financial adviser’s Spot the Dog report, released on 24 May, put the amount of retail money in underperforming funds at £14.25bn. This is double the £7.2bn in January last year and up from £13.72bn at the time of the last report in October. The number of ‘dog funds’ has also risen from 77 to 90.

The latest Relegation Zone is again dominated by Swip, which has nine of its funds listed, including the £1.5bn Scottish Widows UK Growth and £1.1bn Swip High Yield Bond funds.

Swip says it is actively addressing performance issues in the funds identified in the survey.

“Looking at the UK Growth Fund in particular, Swip acknowledges that performance has been unsatisfactory over the last three years and steps have been taken to ensure that these performance issues are addressed,” a spokesman says.

“The UK team at Swip is now headed by Peter Cockburn, whose own performance track record is excellent. Peter is committed to ensuring that our best research ideas are reflected across the whole range of Swip UK funds.”

The UBS Absolute Return Bond fund was again rated worst performer relative to peers across all sectors. It delivered 63.49% below the average, largely due to its exposure to mortgage-backed securities in 2008.

McDermott says overall absolute return strategies have done well since the downturn, although some have not performed as promised.

Elsewhere, Axa Framlington UK Equity Income has made a re-appearance in the Relegation Zone, with performance hindered by positions in healthcare and industrials.

“We are surprised and disappointed to see the Axa Framlington UK Equity Income fund re-enter the Relegation Zone,” McDermott says. “Its manager George Luckraft is highly regarded but the past few years have exposed some frailties in his stockpicking strategy.”