£110 billion invested in under performing funds
The amount of money invested in serially underperforming funds has grown by £10 billion, from £100 billion to £110 billion since last September.
Chelsea Financial Services has released the latest edition of its RedZone report, which names and shames those funds that have underperformed their sector average for three consecutive years, without having had a manager change or process change over the last 18 months.
When it comes to the sectors, UK all companies fared the worst, with 50 funds in the RedZone and about one third of RedZone assets, amounting to £33.7 billion.
The report points out that many of the UK all companies funds in the RedZone are index-tracking funds, which have no option but to follow the market down in volatile periods.
The global sector came second, with 40 funds holding £11.95 billion in assets in the RedZone.
The third place had previously been taken by the UK equity sector, but it has been ousted in the latest report by North America, with 16 funds holding £2.76 billion in assets. However, the sterling corporate bond sector is third in terms of assets, with £9.77 billion held in six underperforming funds.
Across the 259 funds listed in the report, fund management Aberdeen holds 46 of the underperformers, with £30.75 billion in assets.
Legal & General had the second largest number of funds, with eight funds holding £9.12 billion in assets. But in terms of assets, PIMCO is the second worst company, with £15.98 billion invested across four underperforming funds. NFU Mutual came third with seven funds holding £1.13 billion.
Read about the pros and cons of tracker funds.
Also known as index funds, tracker funds replicate the performance of a stockmarket index (such as the FTSE All Share Index) so they go up when the index goes up and down when it goes down. They can never return more than the index they track, but nor will they lose more than the index. Also, with no fund manager or expansive research and analysis to pay, tracker funds benefit from having lower charges than actively managed funds, with no initial charge and an annual charge of 0.5%.
Corporate bonds are one of the main ways companies can raise money (the other is by issuing shares) by borrowing from the markets at a fixed rate of interest (the reason why they are also known as “fixed-interest securities”), which is called the “coupon”, paid twice yearly. But the nominal value of the bond – usually £100 – can fluctuate depending on the fortunes of the company and also the economy. However it will repay the original amount on maturity.