For the first time since Investment Adviser’s ‘red flag fund’ list was introduced, the number of IMA-listed funds in danger of being closed or merged has declined, falling from 67 in 2012 to 58 this year.
The list – which was established in 2010 and uses data from FE Analytics plus the metric outlined on the right – shows 21 of the 58 funds identified have fourth quartile performance against their respective peer groups across one, three and five years, while the remaining 37 all have third or fourth quartile performance in five years.
The 13.43 per cent decline in the number of red flag funds is less surprising when you consider the recent spate of closures in the fund world. Figures from the IMA show 64 funds were either closed or merged in 2012, while 140 were launched.
This year’s list includes seven European-focused funds. Ben Willis, investment manager and head of research at Whitechurch Securities, points out that such funds have fallen out of favour in the wake of the eurozone struggles.
“Due to the concerns over the eurozone, these funds will not only have been hit by outflows but also the ability to attract new monies,” says Mr Willis. “They will [also] have been hit hard by the ‘marketing/distribution’ factor, as any new monies to the region will have undoubtedly gone to the higher profile or better-known names.”
While some funds have made a first-time appearance on the list, there are nine funds that have appeared for three consecutive years.
These include two EFA funds and two Elite funds, which, along with a further two EFA funds on the 2013 list, make it the second-largest grouping of funds in this year’s data. Way Group, the authorised corporate director (ACD) of these funds, declined to comment on the findings.
Adrian Cammidge, head of investment communications at Kames Capital, which manages the Kames Global Equity fund, explains: “We recognised the fund was not performing to our expectations; as a result, we made a number of changes to our overseas equity capabilities.
“These changes included the appointments of Piers Hillier as head of overseas equities. Piers subsequently became a co-manager on the fund, as did Pauline McPherson. As a result, while the longer-term performance is still not to our expectations, the Global Equity fund is now first quartile in one year, and we hope this success will continue to play out in the longer term.”
Meanwhile, Marlborough Fund Managers, which last year had seven funds in the list, has just three in 2013, although the Marlborough European Trust and the Marlborough North American Trust have appeared consistently.
Nicholas Cooling, deputy chairman of Marlborough, says: “We are committed to achieving outperformance for our investors, and since Marlborough took over these three funds less than three years ago, each has had a change of lead manager.
“The performance of the Marlborough North American Trust has shown significant improvement, and the fund is now second quartile in one year and first quartile in three and six months. The management of the Marlborough Emerging Markets Trust was recently brought in-house, and the investment team has been working intensively to replace holdings and turn around performance.
