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Funds downgraded to one star – research update

Funds downgraded to one star – research update

We recently carried out a review of funds that have a Bestinvest star rating and we have downgraded a number of them to one star. The downgraded funds fall short of the high bar we set when analysing funds. We classify a one-star rating as ‘switch’, meaning that there are similar funds available that we have higher conviction in.

You can see a list of downgraded funds below. For each fund, we give a brief overview of why we downgraded it, and our preferred funds.

If you have any questions about your investments or the funds featured below, please call us on 020 7189 2400, request a call back or email us at best@bestinvest.co.uk. A member of our team would be happy to speak to you.

UK Equity funds

Old Mutual UK Mid Cap – 2 stars to 1 star

This fund has assets under management of £2 billion, which is very large. The portfolio is relatively concentrated compared to its peers, holding 39 companies. AXA Framlington UK Mid Cap and Franklin UK Mid Cap are our preferred options.

Jupiter UK Growth – 2 stars to 1 star

This fund has been very volatile over the last year, losing 7% of its capital when the UK market rose 17%. Steve Davis took over as manager of the strategy in May 2015, after previously running the fund in a co-manager capacity since January 2013. We believe the manager’s track record is fairly limited and there are alternative options that we have higher conviction in, including Liontrust Special Situations and AXA Framlington UK Select Opportunities.

Fidelity Special Situations – 2 stars to 1 star

We do not believe that this is a bad multi-cap fund. But assets under management are relatively large (currently £2.7 billion), causing potential liquidity issues given that the small and mid-cap allocation together account for around 65% of the fund. Manager Alex Wright also runs a number of other funds. Our preferred options are Liontrust Special Situations and AXA Framlington UK Select Opportunities.

Franklin UK Equity Income – 2 stars to 1 star

We downgraded this fund to two stars in 2010 and a new manager has been in charge of the fund since October 2011. The group reduced its ongoing charges figure to 0.45% recently, but we have higher conviction options in this sector – Schroder UK Alpha Income and Threadneedle UK Equity Income.

Artemis Capital – 2 stars to 1 star

The manager’s style was in favour in August 2013 when we gave the fund two stars – ultimately, however, we have higher conviction in other funds in the sector. Majedie UK Equity and Old Mutual UK Alpha are two such funds.

Standard Life UK Equity High Income – 2 stars to 1 star

After a period of poor performance we downgraded this fund to two stars in February 2012. We believed the style wasn’t suited to the investment landscape following the financial crisis. Performance has been middling since our downgrade. Schroder UK Alpha Income and Threadneedle UK Equity Income are our preferred options.

Global Equity funds

Global Equity funds that we prefer to the funds below are Fundsmith Equity and Artemis Global Income.

CF Odey Opus – 4 stars to 1 star

Crispin Odey is undoubtedly a talented manager, but the performance of this fund has been erratic and returns tend to be lumpy, both on the upside and downside. Despite Odey, you need to have a strong stomach to hold this fund and we have higher conviction in other funds from the same sector.

Aberdeen Global World Equity/Aberdeen World Equity – 2 stars to 1 star

These Aberdeen funds have performed poorly over most time periods. An overly cautious positioning has been costly and there are no signs of the manager changing stance. These funds have a deep contrarian strategy.

Artemis Global Growth – 2 stars to 1 star

Artemis uses a quantitative system it calls ‘Smart GARP’ (growth at reasonable price) when managing this fund. Despite decent performance, the strategy has its limitations, particularly at times of inflexion points in markets – 2008 was a particularly trying period.

M&G Global Leaders – 2 stars to 1 star

This fund has given disappointing performance over most time periods and stock selection has been weak.

GAM International Growth & Value – 3 stars to 1 star

Following the death of Nils Taube and the retirement of John Hodson, Taube Hodson Stonex (or THS, which GAM acquired earlier this year) is not the same as it once was.

US Equity funds

GAM Star GAMCO – 2 stars to 1 star

This fund’s performance has been poor and there is a lack of conviction in the manager’s stock selection. HSBC American Index and Loomis Sayles US Equity Leaders are our preferred funds.

Legg Mason IF Royce US Smaller Companies – 3 stars to 1 star

Given the manager’s value-leaning, contrarian approach, performance has lagged badly. A recent concentration in cyclical areas has also worked against it. We have higher conviction in T Rowe Price US Smaller Companies Equity and Schroder US Smaller Companies.

Find out more

For more information on high-quality funds from various fund managers, have a look at Our Top-rated Funds. This is our list of funds that we rate highly and believe have the potential to deliver for you over the long term. You can see it at bestinvest.co.uk/premier-selection – alternatively call 020 7189 2400 or email best@bestinvest.co.uk for more information.

Important information

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing. This is not advice to invest. Smaller companies shares can be more volatile and less liquid than larger company shares, so smaller companies funds can carry more risk.

The value of your investment can go down as well as up, and you can get back less than you originally invested.

The Bestinvest Online Investment Service, including any account analysis and investment reports provided by our guidance services, is an online execution-only dealing service for investors who want to make their own investment decisions. It does not provide advice on the suitability of products and investments; if you are unsure about the suitability of any investment you should seek professional advice. Clients of our Investment Advisory Service and Managed Portfolio Service can use the website to obtain current valuations of their investments but cannot trade on these accounts online and should call their adviser if they wish to discuss changes to their investments.

Past performance or any yields quoted should not be considered reliable indicators of future returns. Restricted advice can be provided as part of other services offered by Bestinvest, upon request and on a fee basis. Before investing in funds please check the specific risk factors on the key features document or refer to our risk warning notice as some funds can be high risk or complex; they may also have risks relating to the geographical area, industry sector and/or underlying assets in which they invest. Prevailing tax rates and relief are dependent on your individual circumstances and are subject to change.

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