Reduced £1k to just £630. ‘Abysmal’ Isa funds cost savers billions

Millions of ordinary savers put their money and their faith into investment funds run by big-name asset managers that do not always live up to their billing.

Many did worse than the wider market, including some huge funds that manage billions.

While there is no shame in a year or two of poor performance, especially given recent volatility, there is no excuse if it becomes a habit.

The problem is that many people do not realise how badly their funds are doing, and end up poorer as a result.

Investment fund platform Bestinvest does it best to help by publishing its twice-yearly Spot the Dog free download, which sinks its teeth into underperforming Isa and pension investment funds.

Its latest report names and shames 44 consistently poor performers that hold a staggering £19.1 billion, a sharp rise since last summer.

Six are worth more than £1billion each, and Bestinvest managing director Jason Hollands says people are leaving far too much of their hard-earned money “stagnating in funds with abysmal performance records”. “Isa and pension savers should check if any of their funds have lost their bite.”

Last year was tough for stock markets, which were hammed by war in Ukraine, tearaway inflation, soaring energy prices and rising interest rates, Hollands says.

These are all beyond the control of stock pickers, but funds have no such excuse if they do worse than their rivals, say, for three successive years while charging high fees for their dubious skills.

Here are the biggest howlers.

Halifax UK Growth was a major disappointment. This “big beast” fund is worth a staggering £3billion but rather than making money, someone who invested £1,000 three years now has just £950.

That’s far from the worst performance.

Invesco UK Equity High Income remains popular with £2.85billion invested, but it reduced £1,000 to just £890 over the last three years. It underperformed its benchmark by a thumping 17 percent.

Scottish Widows UK Growth and Halifax UK Equity Income, both worth around £1.8billion, also lost money over three years.

Two other huge funds, St James’s Place International Equity and HL Multi-Manager Special Situations Trust, barely climbed. Investors with £1,000 made just £20 and £50 respectively while rival funds rocketed.

Hollands said: “These funds are repeat offenders, so if the companies won’t act to improve performance, investors should vote with their feet.”

Small is no guarantee of success, either. The £111million Halifax Special Situations and £64million Unicorn Outstanding British Companies both reduced £1,000 to £840 over three years.

Investors in Schroder European Sustainable Equity and FTF Martin Currie Global Unconstrained also lost money.

UK smaller companies fund MI Sterling Select Companies was a real dog after undershooting the competition by 22 percent, Hollands says. “Investors who held £1,000 in this fund three years ago now have just £630.”

Asset manager Schroders was in the doghouse as it manages the underperforming Scottish Widows and Halifax funds.

Columbia Threadneedle and Abrdn were also heavily represented on Spot the Dog.

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Hollands said it is important to check Isa and pension investment fund performance regularly, to see how well they are doing compared to other funds in the same sector.

Do not sell after one bad year, though. Any fund exposed to the US will have struggled lately, regardless of its quality, as Wall Street crashed. So will funds targeting other volatile sectors like emerging markets and smaller companies.

As the end of the tax year looms on April 5, many will be looking to invest at least some of their £20,000 Isa allowance into stocks and shares, and wondering which funds to pick.

Past performance is no guide to the future, but nor can it be ignored, either.

Private investors should aim to build a balanced spread of funds covering different countries, regions and sectors.

As more retirees leave their pension invested in the stock market via drawdown, they need to keep a close eye on investment performance, too, said Andrew Tully, technical director at Canada Life. “As living costs rocket, your money needs to keep up.”

With luck, 2023 will be a better year for shares as inflation eases and the global economy starts to recover. 

Make sure your funds are recovering, too.