MILLIONS of pension and Isa investors trust their financial fortunes to highly paid investment fund managers, who use their skills and experience to beat the market and deliver higher returns. Unfortunately, most of them cannot do that. Research regularly shows that up to three-quarters of asset managers regularly 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 vivid example of this. When 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. His flagship CF Woodford Equity Income fund collapsed, costing loyal investors a fortune. This year, the UK’s two most popular mutual funds have also come unstuck, Terry Smith’s Fundsmith Equity and the Scottish Mortgage Investment Trust, until recently managed by James Anderson. They owe much of their success to the boom in US tech stocks, which has now sharply reversed. Fundsmith’s £25bn equity has underperformed its benchmark over the past year, falling 6.8% against an average fall of just 2.6%. Scottish Mortgage, which invests £13bn, has collapsed by 31.7%. That’s far worse than the average 13.4 percent drop for funds in its industry, Trustnet figures show. Unlike Woodford, there is no scandal associated with Smith or Anderson. The markets just moved against them. Their funds have stabilized over the past three months and investors should not be in a rush for exits. But it also shows how no one person, regardless of reputation, can guarantee investment success at every stage of the market cycle. Terry Smith has an impressive long-term record and could bounce back, but Anderson’s replacement as first-team manager, Tom Slater, has more to prove. The fund went big on high-risk US tech stocks like Tesla and is paying the price as they tumble. 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 of them struggle to do so and their funds fall faster than the market. READ MORE: Earn 7% tax-free annual income – ‘beats any savings account’ This is 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 will have paid the fund manager a handsome fee to try to deliver better returns only adds insult to injury. “However, this is exactly what is happening with a handful of funds that are consistently underperforming,” he added. Hollands said investors should regularly check how their investments are doing and take action if poor performance appears rudimentary. switch to a different fund with a stronger team and track record,” he said However, far too many people fail to do this, and as a result sacrifice thousands of pounds in lost income and growth. It’s no wonder that many prefer passive index-tracking funds that simply follow stock prices up and down, such as exchange-traded funds (ETFs). By their nature, trackers will never beat the index, said Victoria Scholar, chief investment officer at Interactive Investor. “Unlike active fund managers, they will never underperform it.”
