Should I ditch this poorly performing fund?
"I put an original investment of £50,000 into an Aviva balanced fund held by Barclays Investments approximately two years ago. However, it’s now half of its original value. Barclays has said the investment should start improving in the second half of this year, but I am still worried about it."
Ask the Professionals: Matt Pitcher, a wealth adviser at Towry Law, says:
It is difficult to identify exactly which fund this is from the details in your letter, and it’s certainly hard to find any funds that have fallen this hard in the last two years.
You first need to understand why this fund has lost so much money in such a short space of time. I recommend that you ask Barclays why the fund has fallen so much further than the UK stock market and try to find out what it invests in. As a comparison, the FTSE 100 dropped 28% in 2008, but was positive in 2007.
It’s possible that you’ve been sold an investment that invests much more aggressively than you’re happy with.
The key to successful investing is to diversify your portfolio across all of the major asset classes, as this should protect you against extremes of volatility.
You may feel that it is too risky to move away from equities when you’ve already lost so much.
But what if the markets fall further – can you stomach further losses of this magnitude?
Although Barclays seems to be telling you to hold on because the markets will recover in the second half of 2009, the reality is that, like everyone else, it just doesn’t know for certain.
It’s likely that you should remain invested, so you should look at your whole portfolio, including this part, and decide on a better asset allocation – one that fits with your tolerance to loss and appetite for risk.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).