League tables show investors are backing the wrong horse

 

Moneyspider.com’s new monthly sector analysis data reveals startling performance contrasts as bear market takes hold.

 

 

At-a-glance monthly ‘league tables’ of the top and bottom performing Unit Trusts/ISAs show how many investors are backing the wrong horse.

 

 

Worst investment conditions for a generation magnify the difference between the best and worst performing funds from the same investment sectors. The top performing funds in 4 of the top 5 sectors have delivered approximately twice the return to investors over 5 years.

 

 

The sectors - UK All Companies, Balanced Managed, North American Smaller Companies, Europe Excluding UK and Global Growth – collectively hold billions of pounds in investor capital.

 

 

But the compelling research shows that even if investors are in a top rated sector, the difference between the best and worst performing funds from the same sector can mean losing – or making – thousands of pounds.

 

 

In the biggest of the IMA sectors, UK Growth, the top rated fund is Manek Growth, which, after a difficult patch, has consistently done well over key 1, 3 and 5 year periods and earns a Moneyspider.com A rating.

 

 

A £7,000 investment in this fund over the five years to the end of September would have returned £11,877. Yet within the same sector the vastly more popular Rathbone Special Situations fund – which carries the lowest E rating - has been deep in negative territory for the past five years and an investor’s £7,000 would have been reduced to £6,244. And that’s before allowing for inflation.

 

 

‘The fortune of these E rated funds will only get worse in the current climate as people flock to the safety of more consistent funds,’ said Moneyspider.com’s Tony Ahearne. ‘A key point is that these funds are likely to have more redemptions than subscriptions, forcing the managers to sell stock at absolutely the wrong time. The converse is true of the better performing funds, with a more positive cash flow making the manager’s life easier to buy stock at current levels, so this may be a period where it pays to buy into good past performance.’

 

 

A similar scenario is played out in the popular Global Growth sector (see table, below) where the top rated fund is M&G’s huge Global Basics, attracting an A rating and turning £7,000 into £15,700 over five years.

 

The best - and worst - performing funds from the top performing IMA sectors

 

 

 

Yet contrast this excellent showing with fund manager Resolution Asset, whose E rated Global Growth fund has only managed to earn an additional £1,115 over the same period.

“Investors will be able to draw their own conclusions, but it is apparent that comparing the top performing funds in their sector with the lowest rated shows the vital necessity for regular performance reviews,” said Ahearne.

“We are banging a familiar drum, but more than ever in prevailing market conditions, investors must compare their funds with others in their sector, and then compare these sectors with rival sectors on a regular basis in order to see where the best performers are.”

Moneyspider.com has no registration fee and the service not only rates the performance of each investor’s own funds but also shows a comparison with the top five funds in the same sectors.

It also shows the top-performing funds from all sectors, so Moneyspider.com investors can see where the real profits have been.

“Keeping a close eye on your fund’s performance is crucial in these uncertain times - in rapidly changing market conditions, as we are currently experiencing, knowing how a specific fund in which you are invested is performing and – equally important – how other funds compare, is simply good financial common sense,” said Ahearne.

Tony Ahearne, Director, Moneyspider Limited.
Tony has been an Independent Financial Advisor for over 30 years. (The above article is based on the author’s understanding of the new rules and investors are advised to take their own professional advice.)"Many of our members now check their funds on a daily basis."
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