However, investors can also be drawn to a newly launched fund, attracted by a ‘star’ manager or respected fund house.
A case in point is Neil Woodford’s recently launched CF Woodford Equity Income fund which raised a massive £1.6bn in assets during its offer period, the biggest UK retail fund launch in history.
While Woodford’s fund is still in its infancy and doing well, in others the performance of the fund quickly flopped.
Charles Hepworth, investment director at GAM, says the biggest reason to sell a newly launched fund would be a change of investment style or strategy that wasn’t communicated to the investor quickly enough.
“Historically, I have held funds that have done this - during the height of the tech bubble - but that was some time ago when the portfolio see-through analytics didn’t flag up as quickly what was happening to the fund,” he said.
Here we hear from the experts which funds they bought before or soon after launch and why they subsequently sold out sooner than they were expecting.Mark Dampier (pictured), head of research at Hargreaves Lansdown, bought the £257m Jupiter Absolute Return fund when it launched in December 2009. At launch the fund was managed by Philip Gibbs.
The fund was one of the largest launches when it debuted, with £250m pouring in over just a few weeks.
It initially lost 4 per cent in its first nine months and, despite several periods where it made money, it continued to stay behind its benchmark of three month Libor up until the manager left in September 2013.
Performance of fund, sector and benchmark since Dec 2009
Source: FE Analytics
“It completely failed. I had high expectations because Gibbs was a top-rated manager returning 17 per cent per year for about 17 years,” Dampier said.
“Also, this was effectively a hedge fund where he could do everything he wanted to in his previous fund but compliance weren’t happy for him to do this anymore and he froze in the headlights.”
“He thought everything seemed risky and so the price never really moved.”
Dampier said he held onto the fund for several years before eventually selling out.
“He was a top rated analyst at Merrill Lynch and wasn’t looking to shoot the lights out. It was one of the most disappointing things of all-time, in fact I can’t think of anything that has disappointed me more than that. It just gives the passive quasi-religious zealots more ammunition.”
The fund has been managed by James Clunie since September 2013 and has returned 2.2 per cent.
Max King, co-manager of the Investec Managed Growth and Investec Multi Asset Protector funds, says the £233m Better Capital 2009 investment trust, which specialises private equity investments, was his most disappointing recent fund launch.
The fund has underperformed the IT Private Equity sector since its launch in December 2009 but had a significantly torrid time in February 2014 when it lost almost 30 per cent of its value.
Performance of trust and sector since Dec 2009
Source: FE Analytics
It is currently up 7.33 per cent since launch, less than a cash return as measured by the base rate, while the average fund in the sector has made 81.5 per cent.
“It made one bad investment and then it seemed to do very well for a while before blowing up even more so.”
King (pictured) bought the fund on a secondary offering soon after it launched but says he is sticking with the trust.
“We actually think there is still quite a way for it to go, but it has been disappointing so far.”
The trust is currently trading on a 9.7 per cent discount and has an ongoing charge of 0.16 per cent with no gearing, according to the Association of Investment Companies.
Chris Spear, managing director of Spear Financial, bought the £486m Schroder UK Absolute Target fund – formerly the Cazenove UK Absolute Target fund – when it launched in July 2008.
It initially performed strongly against the average fund in the IMA Targeted Absolute Return sector but lost money consistently for most of its first three years, during which time Spear (pictured) sold out of the fund.
“I persisted with it for a number of years but have completely sold out of the funds of behalf of my clients,” Spear said.“It had no direction in a rising market it did nothing and in a falling market it was benign. Recently it has done OK but when it first launched – and I bought it - it really did not perform.”
“It had 1.5 per cent charges which seemed to eat into performance because the margins were so slim.”
Performance of fund, sector and index since July 2008
Source: FE Analytics
It has been managed by two FE Alpha managers since June 2011 and has since mostly outperformed both the sector and its benchmark. However,since February 2014 it has lost more than 5 per cent.
