Good, independent fund research can really make a difference to an investor's finances, helping to maximise returns over the long term.
However, while choosing the right fund can significantly boost returns, picking the wrong fund can have a devastating effect on your investments too. That's where the Chelsea RedZone comes in.
The Chelsea RedZone is statistical analysis which names and shames the worst-performing funds over three years. Each fund in the list has underperformed their sector average for three consecutive discrete years, and has not had a manager change or process change within the last 18 months.
It’s 2020: the start of a new decade. I don’t know about you, but I’ve made a slightly longer than usual list of resolutions. However, as I sit down to write this article, I notice it’s Friday 17th January – also known as ‘Broken Resolution Day’ - or the day you can apparently ditch your promises without feeling any guilt.
One resolution I won’t be letting slide is to pay more attention to my investment portfolio. Certainly not now I’ve seen the results of our new RedZone analysis.
Hindsight is a wonderful thing, but so too is the ability to look clearly at your investment choices - without bias or prejudice - and decide whether or not they still have a place in your portfolio. And what better year than this to develop 2020 vision?
The number of funds in the RedZone has increased quite significantly this year. Having remained steady at 187 in 2018, then 188 in 2019, we have 230 underperforming funds today, with a combined value of £98.7bn – a whopping 49% increase on last year’s £66.3bn.
Much of this bad news comes from the Global sector, which has 48 funds in the RedZone (up from 22 last year) and almost four times as many assets: £17.58bn compared with £4.6bn in 2019. The second worst-performing sector was North America, as funds struggled to keep up with a rapidly rising stock market. This sector has 26 funds in the RedZone equating to £11.7bn, while UK All Companies is third with 20 funds (eight fewer than last year) and £15.74bn (25% less than 2019).
There is a little bit of good news in that Aberdeen Standard Investments continues to turn around much of its underperformance. The group is still ‘top’ with 15 funds and £7.6bn assets in the RedZone but these numbers are reductions of 25% and 30% respectively year on year.
The second worst company is Invesco (the company was second last year), with 14 funds and £11.4bn, while Schroders is in third place with 8 funds and £4.5bn.
The DropZone has eight out of ten new names and is dominated by global energy funds. This reflects the fact that the global oil & gas sector has significantly underperformed over three years, losing 3.32% of its value compared with a 32.31% gain for the wider global stock market**. Is this also a reflection that the sector is ‘dying’, as clean energy is becoming more prevalent?
The Chelsea DropZone lists the worst ten performing funds in the RedZone. They have underperformed their sector averages by the largest amount over the cumulative three-year period.
|Position||Fund||% underperformance from sector average*|
|1st||Schroder ISF Global Energy||66.00|
|2nd||MI Downing UK Micro-Cap Growth||54.53|
|3rd||Guinness Global Energy||49.62|
|4th||MFS Meridian Global Energy||48.25|
|5th||ASI UK Recovery Equity||37.70|
|6th||Comgest Growth Gem Promising Companies||34.54|
|7th||JOHCM Asia ex Japan Small and Mid Cap||29.03|
|8th||VT De Lisle America||28.82|
|9th||Invesco European Smaller Companies (UK)||26.64|
|10th||TM Stonehage Fleming European All Cap Equity||26.59
Finally, as the number of underperforming assets has increased so dramatically this year, I have added an extra table: one that highlights the 10 largest funds – presumably also with the largest number of investors - that have disappointed over the past three years.
|1st||Invesco High Income (UK)||5,721.40|
|2nd||Dimensional Global Short Dated Bond||5,050.00|
|3rd||Scottish Widows Corporate Bond||3,555.70|
|4th||Dodge & Cox Global Stock||3,300.10|
|5th||HL Multi Manager Income & Growth||2,693.40|
|6th||Invesco Income (UK)||2,574.50|
|8th||JPM US Select Equity Plus||2,345.80|
|9th||Robeco BP US Large Cap Equities||2,129.20|
**Source: FE Analytics, total returns in sterling, 1 January 2017 to 1 January 2020 FTSE World vs FTSE World Oil & Gas sectors.
Past performance is not a reliable indicator of future returns. Please note that the RedZone and DropZone do not constitute investment advice. If you are in any doubt as to the suitability of any investment you should seek professional advice. An appearance of any fund in these lists is not an indication they should be sold or switched.