What not to invest in - flop funds to avoid

Published by on 26 October 2010.
Last updated on 21 April 2011

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

There are almost 30 funds that consistently underperform and rank in the bottom quartile, with Legg Mason, UBS and JPMorgan the worst fund management firms, offering seven of the dud funds between them.

Money Observer research reveals that 29 funds, spread across different sectors, have sat in the bottom quartile over each of the past three years.

Legg Mason Continental European Equity, JPMorgan Global ex-UK Bond, UBS Absolute Return Bond, SLI Cash, Artemis Capital, Gartmore UK Alpha and MFM Techinvest Special Situations are the worst offenders, as they were revealed as dog funds three months ago, and are still underperforming.

The research includes funds that have a minimum investment of £30,000 or less.

UBS has three serial underperfomers: UBS Absolute Return Bond, UBS UK Select and UBS UK Smaller Companies. The latter is down almost 5% over the past 12 months to 1 September.

To put that into context, the average UK smaller companies fund is up more than 13% over the past year, with Clerical Medical UK Smaller Companies Alpha up a whopping 41.2%.

Dennis Hall, founder of Yellowtail Financial Planning, is critical of the absolute return bond fund.

"I remember when this was initially launched, it sounded like a good idea on paper, but after a couple of years it ran out of steam. Fortunately we sold out of it before it tanked, and have had no desire to go near it again," he comments. The total expense ratios for the UBS funds range from 1.2 to 1.6%.

Legg Mason and JPMorgan should also call an urgent meeting, as they both have two of their funds in the "Dud League".

North America is a hard region for active managers to add value, and Legg Mason and JPMorgan's US equity funds have failed to achieve anything really.

Nick McBreen, independent financial adviser at Worldwide Financial Planning says Neptune US Opportunities is one of the best US funds and could be an option for investors fed up with the other two funds.

This article was originally published in Money Observer - Moneywise's sister publication - in November 2010

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