Over the last 12 years, the investment funds industry has inflicted a 100% turnover of funds on retail investors and their advisers. Nearly one fund was launched and one fund closed or merged every working day over the period, according to the sector’s own trade body, the Investment Management Association (IMA).
It is extremely unlikely that this level of “churn” has been of any benefit to investors or their advisers. The underlying costs inherent in closing, merging and launching this many funds will have run into many millions of pounds in legal, tax, consultancy and management fees – most of which is ultimately borne by investors.
But the most frightening impact of this level of fund turnover is on performance tables…
It is reasonable to assume that the funds being closed or merged are those that have performed badly. The very high level of activity over the period means that about half of the funds in any five year period have been merged or closed – and that means their track records have been hidden too, as they are no longer in the performance league tables.
So when investors and their advisers look at the past performance of different IMA sectors – although the vast majority will not realise it – the worst performance results will have actually been removed entirely from the equation.
David Norman, CEO of TCF Investment Funds said, “Anyone looking at 5 year sector average performance is only looking at half the story – the good half.”
“There will be lots of investors and advisers wondering why their portfolios never seem to do as well as the league tables suggest they should have. Well now they know why – past performance tables are not even an accurate guide to past performance, let alone the future”
“A cynic would suggest that it made sense to launch lots of funds then merge the poor ones back into the lucky one just to make the manager’s track record look good.”
These startling facts came to light in the IMA Survey 2011 which is based on data to December 2010. This study (with previous years) confirmed that the total number funds that were launched in the last twelve years was 2660. The number of closures including mergers was 2,486 over the same period. The total number of funds in existence at the end of 1999 was 2,437 and by the end of 2010 it was 2,574.
TCF Investment is committed to clarity and fairness in all its dealings and is actively campaigning for radical improvement in the behaviour of that part of the investment industry that would seem to have forgotten whose money it is they are investing.
The TCF Investment website provides a continually expanding range of useful materials and content to help advisers and their clients know where the worst traps laid by the sector lurk and how to avoid them through seeking an enlightened, fair and transparent alternative. This content includes further details on the issues raised in this press release.
Posted on September 26, 2011
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