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 RedZone is back by popular demand. The RedZone names and shames the funds which have underperformed for three years in a row.* This lets you see at a glance which funds are the serial underperformers. The DropZone shows you the 10 funds which have underperformed their sector average by the largest amount.
The start of a new year is a great time to have a quick look at your funds and check if they’re delivering. The good news is that the RedZone is relatively small this year with just 64 funds in the list. Last time we ran it there were over 300 funds. Fund groups are now forced to regularly reassess the value their funds offer and this seems to be prompting them to take action sooner.
The main reason for the small number of funds is that many different styles of investing have had their moments over the past three years. In 2020 during the pandemic, growth stocks did extremely well as we were all forced to stay at home and rely on more tech. As economies reopened and inflation reappeared the value style of investing came back with a vengeance and tech faltered. The net result of all this is that most funds have had at least one year where they outperformed. Those funds which remain in the list have some serious questions to answer.
Despite all this £13bn still resides in RedZone funds. The worst sector was UK All Companies with £3.8bn and 7 funds, followed by the Mixed Investment 20-60% Shares sector with £2.3bn and 7 funds and the Global sector with £739m and 9 funds.
The worst company was Halifax with £2.7bn and 3 funds. Followed closely by Aberdeen with £1.7bn and 4 funds. Regular readers of past RedZone’s may remember Aberdeen has been a regular offender. They have actually made progress from the last time we ran the RedZone when they had £7.6bn and 15 funds. Given that context this is actually a substantial improvement.
The worst performer in the DropZone is the Aegon Property Income fund. This fund has been a major disappointment and announced it would wind up in August 2021. 66% of the net asset value on closure has been distributed to clients. Unfortunately, the fund is closed for trading and investors will have to be patient before they get their final proceeds back. Readers will know Chelsea does not have any direct property funds on its buy lists because of this illiquidity risk.
The fund with the largest amount of assets in the DropZone is Fidelity American which some clients may hold. This fund has been a serial underperformer for a long time now. Whilst Fidelity generally has a strong track record of active management, they like many others struggle in the US market.
Finally, I’ll highlight Jupiter UK Growth which just misses the DropZone by a fraction but is still a relatively large fund with £404m and has been widely held by our clients in the past. The fund was previously hurt by its domestic bias following the Brexit vote in 2016. It looks very different today with a new manager in place since 2020. Performance has improved but the fund continues to underperform.
|Position||Fund name||% underperformance from sector average|
|1||Aegon Property Income||-41.77|
|2||Jupiter Flexible Macro||-37.49|
|3||MI MI Sterling Select Companies||-35.12|
|4||VT EPIC Multi Asset Growth||-27.73|
|5||Sarasin UK Thematic Smaller Companies||-27.45|
|6||Schroder European Sustainable Equity||-27.44|
|7||VT EPIC Multi Asset Balanced||-26.69|
|8||VT Argonaut European Alpha||-25.87|
|9||FTF Martin Currie Global Unconstrained||-25.46|
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.