Adviser selection firm DMP Financial researched hundreds of funds and traced performance over the last ten years, and hit out at some funds and trusts open to UK institutional investors, claiming they had returned more than 5% below sector average while charging millions of pounds in management fees.
Matthew Morris, director of one of DMP Financial’s associate consumer websites and author of the report, said fees exceeding returns “must be seen as a failure of the management team or the individual fund manager”.
However, Adrian Cammidge, head of European investment communications at Aegon Asset Management, criticised the report.
“We believe the fund sizes in this report have been significantly inflated due to double counting, but we are obviously disappointed with the performance of the funds singled out,” he said.
Cammidge added that Aegon had made “significant changes” to both its personnel and investment strategy for in-house funds, as well as its vetting process for external managers. He said the firm was “beginning to make good progress in reversing this poor performance”.
Aegon Asset Management manages funds acquired following its purchase of a majority stake in Scottish Equitable, including its European Pension Fund and International Pension Fund. A £10,000 investment made in the International Pension Fund in 2000 would now be worth £7,870, down 21.3%, according to the DMP Financial report.
Around 260 funds of £100m or more were said to have returned less than 1% over the last decade, compared to a 9.8% return from the FTSE 100 and 18.6% from the FTSE All-Share index.
Also among the funds criticised in the report was Scottish Life’s American Pension fund, which the report said had returned an average -5.8% net of charges per year since 2000, compared to its benchmark, the FTSE USA index, which returned -1.58% over the same period. Scottish Life said it had changed the fund’s management from active to passive in August 2007 due to poor performance, but the fund has still lost 3.5% since the change, according to DMP Financial’s figures.
In addition, wealth management firm SCM Private published research claiming that the cost of active management for an average UK ‘all companies’ equity fund is 6% per year, which is around four times higher than the reported total expense ratio. The report also claimed that the average UK fund manager only actively manages a small proportion of a portfolio, and could in fact reduce a fund’s annual return by nearly 4%.
