Buying an investment is easy. But deciding when to sell is always difficult — as I know from my own portfolio overhaul.
There’s that fear you will sell just as the fund turns the corner and rockets off the launch pad.
My latest sale, about three months ago, was Axa Framlington UK Select Opportunities.
Jitters: The fall in the value of sterling after the Brexit vote and the antipathy to UK stocks since, will have had a disproportionate effect on some UK funds
After many exciting years it suffered a Brexit bashing and, crucially, long-time manager Nigel Thomas retires in March.
Recently, a series of reports has provided great grist for the private investor, highlighting investments that have consistently delivered disappointing returns.
These can provide a useful starting point to question whether or not it is time to sell.
Does the fund still suit your aims? Is it too risky? Has it changed its approach?
It may be pursuing growth while you want income, for example. It may be investing in the UK but you want a global focus.
Some digging online can reveal illuminating comment pieces on how the fund is being managed.
The granddaddy of the ‘awful’ guides is Bestinvest’s Spot The Dog. This warns that £54.6 billion is tied up in funds that have underperformed for three years.
A word of warning. We have to look at this report and others through Brexit-tinted glasses.
The fall in the value of sterling after the vote and the antipathy to UK stocks since, will have had a disproportionate effect on some UK funds — especially those positioned to benefit from a successful Brexit.
Bestinvest identifies 111 so-called dogs — 14 of which hold more than £1 billion each.
These include Invesco High Income and Invesco Income, which underperformed by 19 per cent in the past three years.
Together, these hold more than £11billion having become highly popular during Neil Woodford’s successful management until 2014.
Other big beasts on the list include Woodford Equity Income, Artemis Global Income, Threadneedle UK, Janus Henderson European Selected Opportunities and HL Multi-Manager Income & Growth.
St James’s Place appears three times among the 20 most underperforming larger funds with its UK High Income, Global Equity Income and UK & International Income spotlighted.
Jason Hollands, managing director at Bestinvest, says: ‘Assessing funds has not been as easy in recent years because — up until 2018 — investors have enjoyed several years of rising stock markets.
‘Even those funds that have done a relatively poor job still delivered positive returns. This will have undoubtedly left many investors oblivious to the fact that managers of these funds have collected lucrative fees for plodding behind.’
Big UK companies, whose profits are measured in dollars, have been made more attractive by the fall in sterling
But he warns we have just seen an unusual period. For much of the past ten years medium-sized companies’ shares have out-performed larger ones which has helped stock-picking managers — but the opposite has been true in the past three years.
Big UK companies, whose profits are measured in dollars, have been made more attractive by the fall in sterling.
Chelsea Financial Services’ RedZone highlights funds that have underperformed in each of the past three years. It reserves a DropZone tag for the ten that have fallen furthest behind.
The DropZone now lists Woodford Equity Income, which lost 13.3 per cent over the three years to the end of 2018.
Chelsea spokesman Sam Slator admits: ‘We have had constant debate in our offices about this fund. Some argue that Woodford has been through periods of underperformance before and has always come back strongly. Others think it’s time to sell.
‘From an investor’s point of view, a lot will depend on your attitude to Brexit. Woodford believes the negativity has been overdone. His fund reflects this.’
There have been suggestions Woodford is turning the corner, but evidence is scanty.
Since the start of the year this fund is up 4 per cent while his Income Focus fund is up 7 per cent.
The average UK Equity Income fund is up 6.4 per cent (though Woodford Equity Income is actually in the UK All Companies sector).
Jupiter UK Growth, also in the DropZone, is another fund holding a lot of domestic shares.
But, Slator says, the good news is that several funds run by Aberdeen Standard have crawled out of the RedZone after changes to management and approach.
Elsewhere, investment company Sanlam analysed income funds, covering those that have consistently produced decent returns and those that have not.
Its Income study reveals the best funds on its so-called White List have yielded £27.70 income profits on every £100 invested over five years to the end of 2018. Those in the bottom sector have produced £23.20 in income.
Names on this Black List include HSBC Income, Axa Framlington Blue Chip Equity Income and Aberdeen UK Equity Income.
All three studies can be found on the firms’ websites.
Since I sold the Axa fund, it has beaten its benchmark, rising by 4.5 per cent. But I used the money to buy a S&P 500 tracker at the end of December, which is up by more than 9 per cent since the start of the year, so I’m content.