The RedZone, which is updated three times a year, names and shames funds that have underperformed their sector average in each of the last three discrete calendar years.Those that have fallen short by at least 20 per cent on a cumulative basis are put in the DropZone.
FE Analytics data shows that 151 IMA funds are in Chelsea’s RedZone, with total assets of almost £35bn.
For the first time in years, Scottish Widows/SWIP is not the worst offender – instead, Fidelity has the highest number of underperforming funds, with eight.
“It saddens us that the flagship Multi Asset Strategic fund, managed by Trevor Greetham, stubbornly refuses to leave the RedZone, this being the third consecutive time it has appeared,” said Darius McDermott, managing director of Chelsea Financial.
“It is also a shame to see Fidelity UK Growth, Fidelity UK Select and Fidelity European Opportunities, run by the veteran Colin Stone, on the list.”
“Fidelity UK Growth was a serial offender for many years, before the current manager, Tom Ewing, took the fund on and managed to turn performance around.”
“However, it seems it is once again hitting problems. Hopefully Fidelity will concentrate its efforts into getting its RedZone managers back on track without delay.”
The eight Fidelity funds have combined assets under management (AUM) of more than £2.5bn. Greetham’s Multi Asset Strategic fund is the largest at £689m, but all but the Japan and Target 2020 fund have assets in excess of £100m.
Source: FE Analytics (data to 3/02/2014)
The RedZone and DropZone are calculated according to three-year discrete and calendar year performance to 3 February 2014.
Fidelity Multi Asset Strategic made a bright start between 2007 and 2009, but has since struggled in both rising and falling markets versus its IMA Mixed Investment 20%-60% Shares sector average and composite benchmark.
Its very strong showing during the financial crisis ensures it is still ahead since its launch in January 2007 – though only just with regard to its benchmark.
Performance of fund, sector and benchmark since launch
Source: FE Analytics
Greetham is highly active in his asset allocation, switching between over and underweights in bonds and equities.
The manager is currently bullish on risk assets, telling investors they should expect a 20 per cent return from equities in 2014.
He has maxed out his equity exposure across his fund ranges.
After Fidelity, the worst-off groups in the study are Legal & General and Scottish Widows, which have seven funds in the RedZone apiece.
In terms of assets, Legal & General pips Fidelity to the post with £4.8bn in the RedZone, followed by Schroders with £3.7bn.
Among the largest and highest-profile portfolios on the list are the £559m Schroder US Smaller Companies fund, £689m Kames Strategic Bond fund and £835m M&G UK Inflation Linked Corporate Bond fund.
Of all the global funds, the £688m Neptune Global Equity portfolio is perhaps the highest profile.
It has been hit by its overweight to emerging markets, as has been the case for Anthony Eaton’s JM Finn Global Opportunities fund.
Performance of funds and sector over 3yrs
Source: FE Analytics
Three high-profile UK small cap funds have slipped into the RedZone as well – those managed by BlackRock, Jupiter and M&G.
All have struggled to keep up with the pace of the rally in recent years.
While not particularly high profile, there is one multi-billion pound portfolio in the RedZone – SWIP MultiManager UK Equity Focus.
The vast majority of the £1.4bn fund's assets are institutional – particularly from pension mandates – and it tends to be avoided by retail investors.
The fund has struggled for some time, with relative underperformance going back well beyond three years.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics (data to 3/02/2014)
FE Trustnet has compiled its own research looking at consistent underperformers, and many of the UK funds highlighted also appear in Chelsea’s list.
For the full list of funds in the RedZone, click here.
Chelsea says that while investors shouldn’t automatically sell out of a fund purely as a result of short-term underperformance, funds that have consistently underperformed over three years, and crucially done nothing to turn this around, should be a worry to existing investors.
Thankfully the DropZone – which features the very worst of the funds in the RedZone – contains a selection of very small, unpopular funds.
Perennial unperformer Manek Growth keeps its place in the list, though has on this occasion been “trumped” by SF Webb Capital Smaller Companies Growth as the biggest relative underperformer over three years.
“The worst fund in this group has some of the worst underperformance ever recorded in this report,” said McDermott.
“SF Webb Capital Smaller Companies Growth has underperformed its sector average by an unbelievable 112 percentage points.”
Source: FE Analytics
“This sector has performed extremely well in the past three years, and the other funds in this area which have made it to the RedZone have actually returned 30 to 50 per cent in the period.”
“On the other hand, SF Webb Capital Smaller Companies Growth has managed to lose investors almost 60 per cent. That's simply shocking and, while the manager was changed in 2012, no turnaround has yet begun,” he finished.
In terms of sectors, UK All Companies once again has the largest number of funds with 21 – hardly surprising given it is the largest IMA sector.
It also contains half of the DropZone funds.
Mixed Investments 20%-60% Shares is second with 18 funds, while IMA Global and Mixed Investments 40%-85% Shares are in joint third.
When it comes down to amount of assets, IMA Global is top with £6.5bn, followed by UK All Companies with £5.3bn and Europe ex UK with £4.9bn.
