'Lemon' funds leaving a bitter taste

25th  March 2009

Nobody can claim to have enjoyed the last twelve months of investment performance.  Every main investment asset class, with a few exceptions, have suffered at the hands of falling stock markets, plummeting property prices and generally negative investor sentiment.

Whilst we are starting to see some signs of recovery, markets remain volatile and uncertain.  It would be a very bold person to call the bottom of the stock market right now or speculate on its direction in an attempt to make short term gains.

However, even against the backdrop of falling or volatile investment markets, there are some steps you can take to ensure a positive longer term outcome for your investment and pension portfolios.

Here at Informed Choice we have spent years building a very detailed fund selection process.  Unlike other firms we look at a lot more than simply past performance.  Our research process includes factors such as risk-adjusted returns, cost, consistency and measures of volatility.  By going this step further we aim to deliver superior outperformance to our clients over the longer term.

But equally as important as identifying those funds that stand the best chance of being the winners in the future is the ability to spot the likely losers.  We call these ‘lemon’ funds and every six months we turn our fund research process upside down in an attempt to spot them.

On this occasion we have selected the 327 investment funds we believe are likely to leave a bitter taste in the mouths of investors.  Rather shockingly, we estimate that over £36bn of investor money currently sits within these funds.  Our LemonAid report certainly contains a large number of household names and even some investment funds rated by independent ratings agencies.

The good news is that having a defined investment research process in place makes it easier for us to identify these ‘lemon’ funds and recommend suitable replacements.  Modern financial products, often based around a fund supermarket, make it relatively straightforward to make switches and maintain a healthy investment or pension portfolio.

Much of the work we have been doing over the past year has been engaging with new clients who feel let down by their current financial adviser.  This is typically because nothing has been provided by way of an ongoing service or review of financial plans.  During the good times, when investment markets are going up, financial advisers apparently have no problem speaking to their clients and delivering positive performance figures.  It is during these more challenging economic times that the frequency and quality of contact dries up.

We pride ourselves on the level of ongoing service we provide to all of our clients and the fact that we never shy away from delivering bad news when there is bad news to deliver.  Understand why your investments or pension funds have fallen in value is essential to ensure you make the right decisions now for your future prosperity.

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