The RedZone

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.

Chelsea RedZone 2020

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? 

49% more disappointment

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).

Aberdeen Standard continues turnaround

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.

20 funds to ditch in 2020?

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

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.

Largest underperforming funds

Position Fund Assets (£mn)
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
7th Pictet Digital 2,523.40
8th JPM US Select Equity Plus 2,345.80
9th Robeco BP US Large Cap Equities 2,129.20
10th M&G Recovery 2,057.10
RedZone Title
(click to see the full RedZone analysis)

*All data sourced from FEAnalytics, 01/01/2020

**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.