Investment: Evidence Shows How Funds Have Suffered since the Bubble Burst ; `Now the Tide Has Turned, All Those Not Wearing Swimming Costumes Have Been Exposed'
Davis, Jonathan, The Independent (London, England)
The latest fund performance figures contain startling figures that graphically underline how seriously a bear market is capable of impacting on the fortunes of the fund management industry. In fact, I wonder when the three-year performance figures have been so poor before.
Whatever regulators may say, and we might wish, crude performance figures is still the lifeblood on which the unit trust and investment trust business depend. As the report from Ron Sandler noted, most new business in the UK fund business still flows into the handful of funds that happen to be at the top of the most recent performance tables (or which, in the case of John Duffield's New Star phenomenon, promise to get there).
Consider the following. There are 1,700 or so funds in the Micropal Fund Expert database for unit trusts. How many can boast of achieving a total return of more than 100 per cent in the three years to 31 July, 2002? The answer: just one. This is the Artemis Smaller Companies fund, run by John Dodd. By a neat coincidence, out of 700 investment trusts in the database, only one has hit the same double-your-money-in-three-years target.
When you look further down the tables, the damage that is being caused by three years of falling markets is evident. In the unit trust sphere, only six funds have achieved a total return of more than 50 per cent over three years. Fewer than 25 can boast a return of more than 30 per cent. In other words, barely one in 65 funds can claim to have achieved a compound return of 9 per cent or more with your money.
In fact, more than 70 per cent of unit trusts have failed to produce a positive total return of any sort over the past three years. For the investment trust sector, if you include all the highly geared split capital trusts and warrants, more than 90 per cent of the 700 trusts listed are underwater over a three-year period. Admittedly, I suspect the July stock market lows may not be tested again this year (although next year is another matter), so we are probably looking at the industry's lowest point.
Such carnage is not just a cause of concern for investors. For fund management companies, poor darlings, the pain of falling markets is feeding directly through to the bottom line. In the momentum markets of the Nineties, fund managers could happily ride the markets upward, happy in the knowledge that their income was geared to the value of their assets under management. Now the tide has turned, exposing - as Warren Buffett so unkindly observed - all those not wearing swimming costumes. Hardly any of the bigger fund management houses are being spared the reverse gearing that is implicit in falling markets.
There are interesting observations to be made about the latest market performance data as well. Look at the relative performance of the FTSE 350 High Yield and FTSE 350 Lower Yield indices over the past few years. …