Funds that haven’t lived up to the hype

Sometimes an exciting investment strategy, a brand new concept, a promising young manager, or even a star manager taking on a new project can make a new fund look irresistibly good.

However, IFAs say investors must heed one important warning: don’t believe the hype.


Skandia UK Best Ideas

"Skandia UK Best Ideas was heavily marketed when it was launched back in October 2006," said Chris Spear, managing director of Spear Financial. "On paper the concept looked really, really interesting – ask some of the industry’s best-performing managers for 10 of their favourite long-term investment ideas."

"There were some really famous managers like BlackRock’s Richard Plackett and Liontrust’s James Inglis-Jones so people were expecting some real hidden gems to emerge. However, the fund has underperformed quite seriously. My feeling is they had the ideas of what to buy but didn’t have the sell-discipline."

According to data from FE Analytics the Skandia UK Best Ideas fund has one of the worst track records in the UK All Companies sector. Over the last five years it has lost 23.16 per cent while the average fund has returned 0.57 per cent.


Schroder Income Maximiser

IFA Philippa Gee, managing director at Philippa Gee Wealth Management, has been disappointed with Thomas See’s £722m fund.

"There was a lot of interest and lots of marketing behind the Schroder Income Maximiser fund and it started really, really well," she said.

"However, portfolio manager Nick Purves left the fund over a year ago and the performance has been disappointing since. Over the last 12 months the fund is down 10 per cent while the sector average is down 2 per cent. It goes to show that you need to keep checking on how your investments are getting on."

"The model of the fund still works and it will come good again so I’m not writing it off, but clients have been wondering if their money is better off elsewhere."


Gartmore Techtornado

Graham Toone, head of research at AFH Wealth Management, says there were a number of technology-focused funds launched at the start of 2000.

"The story of the Gartmore Techtornado fund is an interesting one. It launched about a week or two before the bursting of the tech bubble, with disastrous consequences."

"The market consensus at that stage was that the dotcom bubble was just around the corner but sometimes marketing departments have more of a say about when a fund launches than the professional investors."

Gartmore Techtornado merged with the Gartmore UK & Irish Smaller Companies fund (now Henderson UK & Irish Smaller Companies) in February 2003.


Jupiter Absolute Return

Patrick Connolly, head of research at AWD Chase de Vere, says that often star managers get a lot of attention when they launch a new fund but performance doesn’t always live up to the hype.

"The Jupiter Absolute Return fund came in at a time when Absolute Return strategies were being pushed really hard by all the asset managers," he said. "Manager Philip Gibbs’ track record at Jupiter is very, very good and he is very capable. He was adopting techniques in his Financials Opportunities fund that you wouldn’t normally expect from a long-only fund and that has really boosted his performance."

"It therefore made logical sense that he took on an Absolute Return fund and that was how the marketing team sold it to IFAs. However, up until recently, performance has been disappointing."

Data from FE Analytics shows that over the last 12 months the fund has outperformed the sector average overall with returns of 2.36 per cent.