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.

Chelsea RedZone 

The RedZone makes its highly anticipated annual return. It puts a red spotlight on funds that have fallen short of expectations over the past few years*. We hope you find it informative and, if anything, a chance to scan over your portfolio and see what funds might have been holding back your returns. It also gives you a chance to scrutinise the different asset management houses and their ability to provide the best performance for clients across their product range.

In this edition, the serial underperformer list consists of 100 funds, across 41 different companies and 20 different sectors. These companies’ collective underperforming assets total over £36 billion, larger than the size of Cyprus’s GDP**. Abrdn and Baillie Gifford both hold the unwanted title of the most funds in the RedZone with 11 each, equating to just under 30% of the underperforming assets by value. Whilst Baillie Gifford are new to this level of disappointment, loyal readers will know that these aren’t unfamiliar waters for Abrdn. Baillie Gifford’s investment style is largely responsible for catapulting it to the top of the list, but more on that later.

Premier Miton are next on the list with seven, followed by Columbia Threadneedle with six and Jupiter with five. Over 75% of the list is made up of companies that have only one or two funds in the RedZone.

The most prominent sector is the UK All Companies, with 24 different funds. The vast majority of these Red-zoned funds in this sector have a small and mid-cap bias which, as you know, have suffered inordinately over the past couple of years at the hands of rising interest costs and inflation. The UK market has also experienced huge outflows, which has depressed the share prices of many of the lesser-known smaller companies, as demand has dived. The Global sector has the second most underperformers with 14 funds. This is largely dominated by a mix of global small-cap growth funds, as well as global ESG funds that saw particularly strong drawdowns in 2023.

DropZone 

The Dropzone is the top 10 funds with the worst underperformance against their sector average over the course of three years. The worst performer in the Dropzone is Baillie Gifford Global Discovery, which underperformed the Global sector by a shocking 72.7% over the past three 3 years.

Unfortunately for Baillie Gifford, another 5 of their funds also feature on this list. Although this is disappointing, it is not wholly unsurprising. Baillie Gifford’s management style is unshakeably small-cap growth, which has been heavily out of favour over the past few years. Perhaps more pain is to come, but if interest rates get aggressively cut and inflation falls quickly, it could be the worst time to pivot away. This could be said of other Red-zoned funds too, which also deserve another look - it’s always important to look at performance in context over the long term.

*RedZone entry requirement – three years of consecutive 3rd of 4th quartile performance. At least 10% underperformance versus the sector average. No new manager in the past 18 months.

**https://tradingeconomics.com/cyprus/gdp , 2022 GDP in £

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.