The list of 10 includes the Aberforth UK Small Companies and L&G Equity funds, which have more than £100m assets under management (AUM).
The study looked at all the funds in the IMA unit trust and OEIC universe and compared returns with the funds’ sector average.
Andy McCarthy’s Barmac The Castleton Growth fund was revealed as the worst overall, underperforming its sector by 35.71 per cent in the three years to 1 January 2011. According to FE Analytics data, it is the worst-performing Mixed Investment 20-60% Shares fund over both one and three years.
Biggest underperformers over 3-yrs
| Name |
3-yr underperformance from sector average (%) |
| Barmac - The Castleton Growth |
35.71 |
| L&G - UK Special Situations |
31.25 |
| Marlborough - Far East Growth |
28.27 |
| Aberforth - UK Small Companies |
24.21 |
| L&G - Equity |
23.81 |
| Neptune - Cautious Managed |
22.79 |
| Jupiter - Undervalued Assets |
22.27 |
| F&C - Blue |
21.41 |
| SVM - Global Opportunities |
21.38 |
| Insight - Diversified High Income |
21.13 |
Source: Chelsea Financial
Darius McDermott, managing director of Chelsea Financial, recommends investors rid their portfolios of these underperformers.
"The 10 funds that find themselves in the inaugural first edition of the DropZone have underperformed their sector averages by a staggering 21 to 35 per cent over the last three years," he said.
"What I find most frightening is that [nearly] half of the funds are from the old Cautious Managed sector. That a sector of funds deemed to be of limited risk can underperform by such a huge amount is simply unacceptable."
"Even more troubling is the fact that this sector has been one of the most popular among investors over the last few years, suggesting a large number of people could be holding dud funds in their portfolios."
According to data from the Investment Management Association (IMA), the Mixed Investment 20-60% Shares sector has been the best seller in five of the last eight quarters.
"The list also includes funds from some of the top investment houses, including Jupiter's Undervalued Assets and Neptune's Cautious Managed," continued McDermott.
"Jupiter has finally taken action and just announced that they are putting in place a new manager to turn the fund around [Steve Davies]. Neptune surprises us as the fund is run by Robin Geffen, a manager with an excellent track record on other funds. It appears he was simply too cautious, as a high allocation to cash in 2009 and 2010 meant he missed the market rally, just proving that risk isn't all about high allocation to equities."