When to change an underperforming fund?

[simong800]

Hi All,

I was after some advice on when to sell a holding in an underperforming fund/replace with another, and wondered if anyone can offer any guidance.

Background summary is I am invested in 12 funds within an ISA, drip feeding between £1k to £2k a month into various funds broken down to give me a diverse spread in terms of global coverage. 25-30 year investment timeframe, started about 3 years ago. It isn't money I envisage needing (touch wood) so is a case of saving for my future and if one day I have kids etc helping their future too.

I have 1 fund in particular that is causing me to scratch my head a little, Woodford UK Equity Income.

This is up 0.22% since I started investing in it, whilst others in the portfolio are up anywhere from 6% to 56%.

Over 3 months, 6 months, 1 year and 3 years Trustnet tells me this fund is placed 87/87, 86/86, 84/84 and 64/79 compared to others in its sector (IA UK Equity Income).

I bought into this fund off the back of Woodfords reputation, and admittedly to some extent Hargreaves Lansdown's promotion of it at the time when starting out. His track record at Invesco was superb, however this seems to be performing quite badly compared to the competition.

Whilst appreciative I am in for a long term investment and one shouldn't look at the short term performance, even the past 3 years as a whole isn't exactly promising.

Would I be accused of being too reactive to shift this holding (circa 9% of the entire portfolio) into another UK Equity Income fund or is the time right to change?

[Jon39]

I think he (you) had / has significant holdings in several businesses, where 'calamities' have occurred this year.

I remember reading the headlines, but forget the company names.

[crouchingpigeon]

Yeah, the fund has had a torrid time and Neil Woodford is still of the opinion that he is right and the rest of the market is wrong, though he has made some apologies for the poor performance. Jupiter, another fund manager who included his fund in some of their composite funds have recently pulled a lot from the fund too https://www.investmentweek.co.uk/investment-week/n...

Edited by crouchingpigeon on Friday 20th October 15:05

[simong800]

Thanks chaps, yep I had followed this and some of the gambles that didn't pay off! The Jupiter news was interesting too.

Is it normal for a manager to underperform in this way for a period of time? And is the press that goes with it normal? I haven't really seen so much hype around one manager (for example I couldn't tell you who manages Neptune Russia) so wouldn't know if this is just something that happens, if the performance of Woodford is SO bad it is gaining press, or if it is a classic case of the press liking to build someone up then kick them down.....

[Jon39]

Here you are, your personal apology.

http://m.citywire.co.uk/money/woodford-sorry-for-i...

Astra Zeneca I think was just bad luck. With drug trials, sometimes they go well, but inevitably not always.

Provident Financial was different. Thought he would have seen that coming. What used to be knocking on doors collecting life assurance premiums (the industrial life sector) has all but disappeared now, but I think Provident changed to knocking on doors collecting loan repayments. When they got rid of the door knockers, the existing personal relationships were lost, so it obviously goes down hill from there.

[Derek Chevalier]

Out of interest why did you go for a handful of active funds rather than a global tracker?

[simong800]

Derek Chevalier said:

Out of interest why did you go for a handful of active funds rather than a global tracker?

Some of the funds were a a bit specialist, i.e. emerging markets fund where I felt a fund manager could seek good value/get better returns, also a property fund investing in commercial properties (bricks and mortar, to scratch an itch without getting into buy to let) and so on.

In hindsight a tracker would clearly have outperformed a couple of my choices, without doubt!

Edit to add this very question has inspired me to do some reading on active vs passive again and see if the advice found is the same as 3-4 years ago when I first started looking.....

Edited by si800 on Friday 20th October 21:07

[MWM3]

Think Woodford has made several school boy errors this year and personally wouldn't jump into one of his funds at the moment.

If your looking at changing to another UK equities fund I would look at the Lindell Train UK Equities fund personally.

Active vs Passive funds is an interesting one, my portfolio is split about 50/50. The active funds I am in are in markets where I consider it better to have a fund manager looking after things (Japan, India and small cap global companies) or there us a proven record over time (15-20 years) that the fund has significantly out performed the corresponding index.

[Derek Chevalier]

MWM3 said:

that the fund has significantly out performed the corresponding index.

How do you determine the corresponding index is a fair one e.g. the company claims to benchmark against the All-Share when realistically the 250 is a much closer to the shares they are holding?

[MWM3]

Derek Chevalier said:

How do you determine the corresponding index is a fair one e.g. the company claims to benchmark against the All-Share when realistically the 250 is a much closer to the shares they are holding?

That is a fair point. I also have a criteria when selecting managed funds in established markets that over a reasonable time peiod (ideally 10 years or more) the fund has returned on average at least 7.5% per annum after fund fees.

[anonymous-user]

The fund has had a tough 6 months but better lately.
Still 30%+ up over the last 4 years...
Gamble with Woodford or elsewhere?
May as well toss a coin