Managing investments isn’t easy, but fund managers get paid a fortune and when they fail you should have no compunction about sacking them.
Three funds that invest in UK shares and look after over £650 million of investors’ money are failing so badly that if you hold these funds you should be selling now.
I could add another two dozen funds also doing badly in the same sector-investing for growth in UK shares - but many are run by tiny fund management groups.
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Giving Rathbones some stick
The most high profile manager who now deserves the chop is Carl Stick at Rathbones. He made a name for himself managing the Rathbone Income fund, whose performance continues to be reasonable.
But with Rathbone Special Situations, a more aggressive growth fund, Carl seems to have lost the plot. In 2005 the average fund made 20.8% while Rathbone Special Sits made 1.9%.
In 2006, Stick made 4.8% while the average fund gained 17.4%. And in 2007, Stick actually lost 11% while the average fund made 2.2%. That really is a terrible record and over a long enough period that you should have no hesitation in pulling the plug.
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Flexible but not profitable
The group’s website says: “We use the flexibility of the fund’s mandate to maximise our investment opportunities,” but clearly Carl’s style hasn’t been flexible enough to cope with changing conditions in the UK market.
Yet the fund still has over £150 million of investor’s money. It’s time that money walked.
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Profit hunting can be a hit and miss affair
Number two for the chop is Adrian Paterson at Artemis. This fund management group has done well with several of its funds including the highly regarded Adrian Frost who manages the Income fund.
But the Artemis UK growth fund is a different story. Here Adrian Paterson, who started managing the fund in 2002, has struggled to adapt to changes in the market. His record (compared with the average fund in the sector) is 2005 +13.6% (+20.8%); 2006 +15.7% (+17.4%); 2007 -4.7% (+2.2%).
This performance isn’t as bad as Rathbones’, but that’s not the point. Fund management groups say they can beat the average because of their fund management skills. And they charge a lot for it. This fund is a failure, so sell now.
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And Loser No.3 is…
The third loser is Marlborough’s Michael Bernard, who manages the Marlborough UK Equity Growth fund. Admittedly this is a small fund, but its record is dismal and Marlborough should just shut it down or transfer the money to another fund instead of allowing this clearly incapable fund manager to lose more money for investors.
His record (again compared with the average fund) is: 2005 +1.9% (+20.8%); 2006, +4.8% (+17.4%); 2007, -11% (+2.2%). Bernard is an ex-stockbroker and so is Stick. Very few of the fund managers who have produced good results year after year have been stockbrokers.
I believe the profession encourages a short-termist view and an acceptance of high rates of buying and selling in a fund, neither of which are sure to benefit investors.
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Buy this fund instead
In contrast I am going to recommend a fund in the same sector for you to buy if you hold one of these three or one of many other duds in the sector: M& G Recovery. It is managed by Tom Dobell, who graduated from agricultural college before becoming a fund manager with a very old-fashioned outfit, Phillips & Drew.
He joined M&G in 1992 and has been managing Recovery for over eight years. Like most of the M&G managers, Dobell does believe in long term investment; the group buys shares in companies where it knows the managers and works with them over a period of years to capture the benefits of the recovery it believes is possible.
Over the latest three calendar years Dobell’s figures for M & G Recovery are: 2005 +26.6% (+20.8%); 2006, +20.7% (+17.4%): 2007, +12.5% (+2.2%). Beating the average each year is tough, and few managers achieve it consistently, but Dobell looks as if he may join the elite ranks of those who have managed the same fund for a decade while consistently outpacing the opposition.
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Much of Britain’s business is in recovery
M&G say Dobell can look after much more than the current £2,800 million invested in M&G Recovery using the same methods. The ‘recovery’ tag is one that can be hung around the necks of many of Britain’s top businesses, including all its banks - a sector where Dobell has yet to take the plunge.
The market conditions are ideal for this type of fund. So if the market does well, I believe this fund will do better, while if the market does badly, Dobell’s low holdings of financials will save investors from the worst.
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Important risk warning - please read
The value of your investment and the income from it can go down as well as up and you may not get back a significant proportion of your investment. Past performance is not an indication of future performance. If you are in any doubt as to the suitability of an investment, you should seek independent financial advice.
