Investors wasting £30 billion on poor performing funds

Chelsea Financial Service, the independent financial adviser, have said private investors are pouring £30 billion into poor performing investment funds – the majority of which are run by household names.

Chelsea has listed nearly 200 funds that are continuously disappointing investors and have placed them in its latest Relegation Zone list of badly performing portfolios. In order to make it onto the list, a fund has to have been placed in the lower half of its peer group in each of 3 consecutive years.

The 5 largest funds under-performing include portfolios from Halifax, Prudential and Scottish Widows and make up for nearly £14 billion worth of private investors’ money.

The biggest fund included on the list is the £3.29 billion Newton Investment Management Higher Income fund. Scottish Widow’s £2.64 billion Corporate Bond fund and its £2.16 billion UK Growth fund are also amongst the largest funds included on the list. Scottish Widows, owned by Lloyds TSB, has 12 funds on Chelsea’s list.

The last 2 portfolios making up the 5 biggest funds on the list are the £3.27 billion Halifax Corporate Bond and the £2.41 billion Prudential UK Growth fund. Abbey National’s £2 billion UK Growth fund is frequently relegated while Prudential’s £2.41 billion Growth fund has also been listed.

A spokesperson for Chelsea remarked that this is an indication that these fund groups managed to get their house in order. What the Relegation Zone continues to emphasise is that big names and large funds are not necessarily the best choices.

Chelsea added that Japan has been awful for investors recently. The 2006 performance highlights that all funds in the relegation zone reported negative returns.

In addition, global bonds have had a bad time over the last 3 years with many in the Relegation Zone showing negative figures but of notable absence are the smaller boutique funds such as SVM and Neptune. These fund houses have proved that they should not be ignored.

Chelsea concluded that investors should switch to better-performing funds. For example for those invested in the Halifax and Scottish Widows corporate bond funds, Chelsea suggests the Aegon Sterling Corporate Bond, it has delivered 4.6% against a sector average of 4.4% over the past 3 years.

Furthermore, for those investors in struggling UK growth funds like Prudential, Scottish Widows and Abbey vehicles, better performers are Jupiter UK Growth and Artemis UK Special Situations.

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