‘Star’ Fund Managers are Sent to the Doghouse

Some of Britain’s most highly rated stock pickers are repeatedly disappointing investors, according to David Budworth of The Sunday Times.

Fund managers who were once praised as among the brightest and best in Britain are failing investors by repeatedly lagging their peers, according to a damning report.

Investors have pumped hundreds of thousands of pounds into funds run by managers promoted as investment “stars” because of their supposed skill at picking shares – but several make it into the latest survey of “dog funds” published by Bestinvest, an independent financial adviser.

Justin Modray of Bestinvest said: “Great things were expected of these supposed stars so their poor performance is particularly disappointing.  “In some cases a move to a more successful fund with a proven manager at the helm is likely to be a good idea.”

The foundering stars include Mark Mobius, who is widely known as the “godfather” of emerging markets after popularising the sector in the 1990s.

Mobius manages Templeton’s £2 billion Emerging Markets investment trust and an equivalent unit trust.  In the three years to the end of June the unit trust has risen by 117%, compared with a 141% return from the MSCI Emerging Markets index.

Other managers who are named and shamed include Patrick Evershed, who runs New Star’s £134m Select Opportunities fund.  Although he has a good career record, his performance over the past three years has been below par.  Select Opportunities is up just 28% over three years, against 68% for the FTSE All-Share.

His decision to invest heavily in smaller companies listed on the Alternative Investment Market has been a drag on returns. 

You should not necessarily ditch every fund in your portfolio that lags.  Savers need to distinguish between schemes that have the potential to recover and those that are simply bad.

A weak manager may be replaced, or more resources devoted to running the fund, enabling a poor performer to bounce back.  Modray recommends sticking with the Mobius and Evershed for now, in the hope of an improvement.

However, funds that are a definite sell, according to Modray, include the £803m Fidelity UK Growth fund run by Carlos Moreno, who works alongside star fund manager Anthony Bolton.  It is up 48% over three years.  Modray tips AXA Framlington UK Select Opportunities as an alternative.