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Fidelity the biggest culprit as RedZone finds £35bn in underperforming funds

Julia Rampen
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Julia Rampen

Investors have sunk nearly £35bn into underperforming funds, with Fidelity the worst offender by number of products, according to Chelsea Financial Services.

Chelsea’s tri-annual RedZone list of underperforming funds has highlighted poor performance from heavyweights Fidelity, Legal & General, and SWIP.

With eight funds, Fidelity has the highest number of underperforming names in the latest RedZone.

Trevor Greetham’s Multi Asset Strategic fund has performed poorly for a third time, while its UK Select, European Opportunities, and UK Growth funds also failed to deliver.

“Fidelity UK Growth was a serial offender for many years, before the current manager, Tom Ewing, took the fund on and managed to turn performance around. It seems it is once again hitting problems, however,” Chelsea managing director Darius McDermott said.

“Hopefully Fidelity will concentrate their efforts into getting their RedZone managers back on track without delay.”

Fidelity declined to comment.

Legal & General and Scottish Widows/SWIP tied for second place, with each contributing seven underperforming funds. In terms of assets, Legal & General topped the list with £4.8bn in underperforming funds.

Despite evidence of a UK recovery, UK All Companies accounted for 21 underperforming funds, making it the largest sector represented. Half of the DropZone funds came from this sector.

Chelsea’s RedZone lists funds that have consistently languished in the third or fourth quartile over the three years to 3 February 2014, with the exception of funds where managers have been in the job less than 18 months.

SF Webb Capital Smaller Companies Growth was the worst-performing of the 151 funds named in the list. It fell almost 62% over the last three years, compared to a sector average gain of 54%, according to FE.

Chelsea described this as “shocking”, and “some of the worst underperformance ever recorded in this report.”

Unicorn Asset Management founder Peter Webb took charge of The Share Centre’s Smaller Companies Growth fund in mid-2012. However, he struggled to sell many of the illiquid stocks he inherited. In the year to 19 February 2014, the £4m fund returned 0.3% compared to a sector average of 32%.

Webb said sector comparisons failed to take into account the difficult legacy his team inherited.

“This fund was rescued for investors. If it had been allowed to fold in the summer of 2012, it would have been a bloodbath,” he said.

The managers have turned over 60% of stocks in the past year, he added: “We have not had anything we have invested in that has failed.”

McDermott said: “It is clear the new management are not responsible for all the performance. But as there has been no turnaround, we decided to include this fund.”
The previous worst performer, Manek Growth, came in second place on the list with underperformance of 67%.