The performance of bottom ranked income funds is unlikely to improve unless there is a change in m...
The performance of bottom ranked income funds is unlikely to improve unless there is a change in manager, according to Principal Premier's income study.
Names which have consistently featured in the top half in previous studies appear again this year.
BWD UK Equity Income, Newton Higher Income, Liontrust 1st Income and Clerical Medical Equity Higher Income have again all scored highly in the study, and if the trend continues are likely to carry on doing so.
The study illustrates that very rarely do funds that have performed badly become good ones. The group's Black List includes a number of familiar names such as M&G Dividend, Abbey Dividend and Growth, and Scot Amicable Equity Inc.
According to Nick Hollings, head of managed fund portfolios, unless there is managerial change in these firms, there is unlikely to be any improvement.
Hollings said it is interesting that the White List is mainly comprised of "pure investment houses", not financial conglomerates, of which there are a higher proportion in the Black List. These smaller funds, he said, have managers hungrier to get things done, whereas the larger conglomerates may not be as performance aware.
Hollings said: "You are not going to spend years doing nothing and then suddenly pick up, things perpetuate. If there is no catalyst or motivation for change, nothing is going to change. Why would it? Once a bad fund, always a bad fund."
The only exception to changing manager could be to change the investment style of the fund. Hollings cites ABN Amro UK Equity Income as a good example.
After very little action in the early years, ABN Amro became a new entrant to the White List in July. "This was partly down to a revised approach to running things and a new way of looking at things," Hollings said.
The 12 Black List funds fell by 1% on average last year, compared with 10% average gain from those on the White List. Returns are calculated on a bid to bid, income reinvested basis. On the income side, £100 invested in the Black List funds would have produced a five-year total income of £17.56, compared with a White List average of £23.90.
Volatility statistics have been included in the study for the first time and add to the bad news for companies sitting in the Black List.
The average volatility for Black List funds is 1.96 compared to only 1.69 for funds on the White List.
From the White List, Jupiter Income had a volatility of 1.4%, Rathbone Income was at 1.51%, compared with that of 2.9% from Marlborough UK equity and 2.11% from Scottish Widows.
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