By STEPHEN MARRIOTT 24/01/2008
It has often been said that the private investor is the last to join the party.
Witness the experiences of the TMT (technology, media and telecoms) boom at the
end of 1999 – many private individuals invested in these “new paradigm” companies
like they were going out of fashion just before the market crashed and experienced
a three year bear market. That’s not to say that a lot of investment professionals
avoided the carnage. Conversely, investors have a habit of selling investments just
at the wrong time. A contrarian approach can often be rewarding for the patient
investor; that’s why I thought it’d be interesting to look at those funds that have
experienced the biggest unit holder sales. One has to be alert though because redemptions
can often make a bad situation worse by increasing trading costs or forcing managers
to sell investments that they’d rather hold onto. Below is a list of those funds
that experienced some of the biggest redemptions by size of unit holder sales in
2007 (note institutional and merged/closed funds have been excluded).
Fidelity Global Special Situations – net redemptions £508m. It’s no surprise that investors have been selling this fund as it was formed
from the division of Fidelity’s UK Special Situations fund and was managed by the
legendary investor Antony Bolton until January 2007 when Jorma Korhonen officially
took over. It’s too early to judge the quality of the new manager and this appears
a sensible move by those investors who have moved on.
Fidelity Special Situations – net redemptions £335m: After twenty-eight years at
the helm of this fund Anthony Bolton handed over the reins of his top performing
fund to Sanjeev Shah. The new man has a hard act to follow - under the stewardship
of Bolton the fund produced returns of 16,047%. By way of comparison the FTSE All
Share grew by 4,225% over the same period. A number of holders have obviously decided
that it’s time to take their money and run.
Scottish Widows UK Select Growth – net redemptions £531m: Scottish Widows has never
set the world on fire within UK equities. This fund was a mediocre performer in
2007 and also experienced a loss of fund manager. Naturally investors believe there
are better alternatives elsewhere.
Fidelity European – net redemptions £414m: Performance has been unusually poor for
fund manager Tim McCarron who has a good long term record - during the last year
the fund suffered due to an overweight in financials. However, performance looks
more positive over the shorter term with the fund now targeting larger cap stocks
and we believe it won’t be long before returns look healthier.
Standard Life International – net redemptions £774m: I wouldn’t be surprised to
see outflows turn to inflows on this fund shortly as the fund is overweight UK large
cap equities, an area of the market we like at the moment, and its fund manager
Jackie Kerr has a good long term record.
Legal & General Fixed Interest – net redemptions £477m: This fund invests in
corporate bonds and suffered in 2007 as a result of the summer credit crisis and
the widening credit spreads relative to government bonds. However, corporate bonds
risk premium over gilts are starting to look attractive and this fund is ideally
placed to benefit.
Halifax Corporate Bond – net redemptions £582m: Halifax is not a house we recommend
but performance concerns must have been a strong reason for this fund being dumped.
In a volatile year for markets, investors would have looked to corporate bonds to
protect their assets as well as producing some returns. However, this fund lost
1% producing fourth quartile returns.
UBS Global Emerging markets – net redemptions £361m: On an absolute basis this fund
had a strong year in 2007 as emerging markets raced ahead. However, on a peer group
basis it is in the doldrums due to its value style of investment and underweight
exposure to China. Perhaps 2008 could be the fund’s year as many commentators now
believe that China is overvalued. This includes legendary investor Warren Buffet
who sold Berkshire Hathaway’s stake in PetroChina towards the end of last year –
Buffet is not normally wrong!
Threadneedle Latin American – net redemptions £308m: Latin American was a rewarding
market for investors in 2007 and there aren’t many funds which offer exposure to
this specialist region so it’s hard to understand why this fund experienced such
major outflows. However, it experienced a management change in September with the
fund’s deputy taking over as the lead manager. One suspects Fund of Funds have been
responsible for the bulk of redemptions, with the majority not wanting to take the
risk of investing with a less experienced manager.
Lloyd George Emerging markets – £368m: The fund is now only £17m in size and investors
appear to have lost patience with it, which over one, three and five years is ranked
99th, 97th and 92nd percentile respectively. However,
this exit may have been a little premature as in September 2007 the fund was taken
over by Kathryn Langridge, formerly of Invesco Perpetual, who has an excellent long
term track record.
Overall net sales for 2007 were positive but as markets deteriorated in the second
half of the year as the problems associated with the credit crisis came to light,
investors began to panic and sell. In fact, November saw record selling of funds
- there was a net outflow of £333m from retail investors, the first time
that redemptions have exceeded sales. Interestingly, property funds which were gathering
assets at a healthy pace at the start of the year became one of the biggest victims
of investor redemptions and became forced sellers of property assets towards the
end of 2007. The year also saw a wide divergence in the returns of UK Equity Income
funds – an underweighting of banking stocks, usually a natural investment for income
funds (because of high dividends) sorted the good performers from the bad. Next
week we’ll break the year in half and compare the top selling funds for the first
half of 2007 against the biggest redeemed funds at the end of 2007.
Data is sourced from Lipper Hindsight and compares the values of funds as at the
end of 31/12/2006 and 31/12/2007 and adjusts for price movements.