Even the experts underperform expectations – and the market – some of the time. Star managers Neil Woodford, Anthony Bolton and Richard Buxton have all had periods of poor performance, and if you had been savvy enough to invest during those lows you could have made a considerable return.
Morningstar analysts take a long-term view when rating funds. Using a “Five Ps” checklist, they examine a fund’s people – the fund manager, parent – the investment house, the investment process, the price and the performance. In this way the fund’s rating is qualitative and can make informed summations about the future, rather than basing a rating solely on performance, which is backward looking.
Flipping investments and portfolio churning is best left to the professionals, taking a long-term view ensures you are not tempted to panic sell when performance dips and crystalise losses. Using Morningstar’s Fund Screener, investors can screen a fund’s qualitative analyst rating and quantitative star rating to identify those funds which pass the Five Ps test – but have recently underperformed the market. Could these three funds be due a bounce?
Franklin UK Smaller Companies
This fund is a compelling offering for investors looking down the market-cap scale in UK equities, and is rated Bronze.
The fund has been co-managed by Paul Spencer and Richard Bullas since June 2012. Spencer is well-experienced and has been lead manager on the Franklin UK Mid Cap fund since 2006
Neptune Global Equity
While the fund remains a very good global equity offering, the risk/return profile of the fund has deteriorated over recent years and this has led Morningstar to downgrade the rating of the fund to Silver.
In Morningstar’s view, this fund benefits from an excellent fund manager in Robin Geffen, who has more than 30 years of investment experience. He set up Neptune Investment Management in May 2002, and has since managed a number of the firm’s flagship funds. He receives considerable support from a well-resourced team that is heavily involved in the research process.
M&G Recovery
Despite the weak near-term performance, Morningstar retains its conviction and continues to rate the fund Gold.
This fund’s relative performance has undoubtedly disappointed investors in recent years. In the three years to the end of Feb 2014, the fund has lagged the FTSE All-Share benchmark by 3.3 percentage points per annum and has trailed the category by a more significant 7.6 percentage points per annum. While that is an unsatisfactory outcome for investors, the fund is still ahead of the benchmark and category since manager Tom Dobell took charge at the end of March 2000.
