This time last year, the price of oil had fallen to a six-year low, Europe was having deflation issues, the UK government was trying to woo voters and Aberdeen was the worst offending company in the Chelsea RedZone – our regular review of the most consistently under-performing funds – with 10 funds on the list.

Things only got worse over the course of the year and, in the final RedZone of 2015, all of the funds Aberdeen had taken on when it bought Scottish Widows were added to the mix and they had no fewer than 43 underperforming funds altogether. Total assets in the RedZone across all companies had also almost tripled in size to more than £100bn.

Today, the oil price is at a 15-year low, the government is about to start trying to convince us staying in the eurozone – which still has deflation issues – is a good idea, and Aberdeen hasn’t had any luck turning things around. Assets in the RedZone have grown to almost £110bn and there are 259 funds in the Chelsea table.

Time to review your portfolio

That’s a lot of consistently underperforming funds so it’s quite possible that you are invested in one of them! There are no fewer than 50 UK equity funds and 40 global equity funds on the list – both popular sectors for UK investors. I’m not suggesting you should immediately sell your fund if it is on the list, but it’s worth reviewing to try to understand why it has done so badly. As we approach the end of the tax year, many investors are starting to think about using their ISA allowance and now is as good a time as any to review your whole portfolio.

Some fund ‘styles’ may simply be out of favour – that’s one of the reasons Aberdeen funds are making an appearance in the RedZone. Some may be suffering as a result of their underlying asset class underperforming, rather than the fund manager doing a bad job, per se (I’ll come back to some of these in a moment). Others simply aren’t up to the challenge.

Markets have had an awful start to the year – down 20% from their peak in 2015 in some cases – so now, more than ever, you need to be in funds where the fund manager is earning their fee.

Size does matter

A new trend I’ve noticed in this latest review is that there are a large number of tiddlers amongst the RedZone funds. By tiddlers I mean funds which have £10m or fewer assets under management, and there are 33 on the list. They include a couple of ‘ranges’: Barclays Wealth Global Markets 1, 2, 4 and 5 (fund 3 is only slightly bigger at £15m) and PFS Momentum Factor 2, 3 and 4.

Funds of this size are generally more expensive for investors, as they’re not large enough to enjoy economies of scale. This means those higher fees eat away at any gains the manager has actually made for you. For the fund management company, they are not a viable proposition either, as they don’t generate enough income. So, unless the fund management company believes they can gather new assets in a reasonably short period of time, they usually get wound-up or merged with other funds.

The energy tariff

The eagle-eyed among you will notice there are a number of energy/resources funds in the table, which have underperformed the Global sector average by as much as 80% over the past three years. These are the examples I alluded to earlier, of funds which are making an appearance on the list owing to their underlying asset class underperforming, rather the fund manager necessarily doing a bad job.

As mentioned above, the price of oil has fallen to a 15-year low and, at the time of writing is just over $28 per barrel. It has fallen 80% from its peak of $147 in July 2008, with most of the fall coming in the past 18 months. Some analysts have suggested it could fall as low as $10 per barrel, at which point oil would become cheaper than some bottled water!

Could the price of oil really fall that far? Quite possibly, especially in the short term. The momentum is in a downward direction and there is no catalyst in sight to stop it. But on the other hand, could the oil price recover to $45 or higher in the next three to five years? Equally possibly.

The contrarian in me is itching to invest. If the oil price is near the bottom, the energy equity funds in the table may well enjoy a decent recovery in the coming months, in which case they won’t be in the RedZone for long.

Darius McDermott is managing director of Chelsea Financial Services.