Even those who enjoy fleeting success find it difficult to repeat the trick. Over the past year, the UK’s two favorite fund managers have lost their magic touch. Others never had it.
MILLIONS of retired investors and Isa entrust their financial fortunes to highly compensated investment fund managers, who use their skills and experience to beat the market and generate higher returns.
Unfortunately, most of them cannot. Research consistently shows that up to three-quarters of asset managers consistently underperform the market.
Instead of generating a higher return, they rack up losses and charge a pretty penny for the privilege. Even those who succeed for a year or two rarely repeat the trick.
The rise and fall of Britain’s favorite fund manager, Neil Woodford, is a stark example. While working for Invesco Perpetual, he turned a £10,000 investment into £114,000 in 20 years.
Wealth and success went to Woodford’s head after he struck out on his own. Its flagship CF Woodford Equity Income fund collapsed, costing loyal investors a fortune.
They owe much of their success to the US tech stock boom, which has now abruptly reversed.
The £25bn Fundsmith Equity has underperformed its benchmark over the past year, falling 6.8% against an average decline of just 2.6%.
Scottish Mortgage, which is investing £13bn, collapsed 31.7%. That’s far worse than the average 13.4% drop in funds in its industry, according to figures from Trustnet.
Unlike Woodford, there is no scandal related to Smith or Anderson. The markets simply moved against them.
Their funds have stabilized over the past three months and investors should not be rushing for exits. But it also shows that no individual, no matter how reputable, guarantees the success of an investment at every stage of the market cycle.
Terry Smith has an impressive long-term track record and could bounce back, but Anderson’s replacement as main manager, Tom Slater, has more to prove. The fund has been betting big on high-risk U.S. tech stocks like Tesla, and is paying the price when they crash.
Stock markets are under siege due to rising interest rates, the energy crisis and the war in Ukraine.
Fund managers should protect investors, but as we recently reported, the majority find it difficult to do so and their funds are falling faster than the market.
It’s costing real people real money they desperately need in retirement, Hollands said. “2022 has been a tough year and the last thing you want is to find that your investments have performed even worse than the market.”
The fact that you paid the fund manager handsome compensation for trying to deliver better returns only adds insult to injury. “Yet that is exactly what is happening with a handful of consistently underperforming funds,” he added.
Hollands said investors should regularly check the status of their investments and take action if poor performance seems entrenched. move to a different fund with a stronger team and track record,” he said
Yet too many people don’t and are sacrificing thousands of pounds in lost revenue and growth.
No wonder many prefer passive index funds that simply track stock prices up and down, like exchange-traded funds (ETFs).
By their very nature, trackers will never outperform the index, said Victoria Scholar, chief investment officer at Interactive Investor. “Unlike active fund managers, they will never underperform it either.”
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