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Massive Under Performance in Managed Funds in the UK in 2016

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April 4, 2017 By: , No Comments

The Brexit vote has come and gone, and now the UK has officially triggered Article 50 of the Lisbon Treaty. There are 2 years before Britain is officially divorced from the European Union, whether a blueprint for a Brexit is in place or not. Some 87% of UK equity funds performed sub optimally last year. This was the result of many UK investors being blindsided by the double whammy that hit them. The election of Donald Trump to the highest office in the land, and the shock result of the Brexit referendum caught everybody off-guard.

 
It now appears that conventional asset managers are unable to deliver on their promises to investors. Leading index provider, the S&P Dow Jones indices confirmed that there has been a deterioration of UK equity funds performance. In 2015, some 22.2% of UK equity funds underperformed, and a year later that number increased fourfold to 87.2%. For the most part, actively managed equity funds in the UK generated a return of 11.2% on average, approximately 6% less than the UK equity index vis-à-vis calculations by the S&P.

 

What caused and underperformance of UK equities?

Managed Funds

 

Financial stock volatility was a major driver of the overall underperformance in UK equities. During Q1 and Q2 of 2016, financial (banking and related stocks) stocks underperformed. By Q3 and Q4 of 2016, there was a strong recovery. This was unexpected by fund managers, but certainly a welcome treat. Much the same was seen across Europe. It is now evident that actively managed funds are detrimental to and investors financial portfolio. In other words, these decrease your financial wealth. As a result, the FCA (Financial Conduct Authority) will be looking at ways of rectifying fund management. Of importance are pension funds and the treatment of retail investors.

 
In 2016, the FCA concluded that benchmark funds performed better than actively managed funds. All of the fees and associated costs of employing the services of fund managers were not worth the returns that were generated. However, the IA (Investment Association) refuted the claims of the FCA vis-à-vis the active managers’ performance. There are certain trends taking shape in UK investment circles. According to Investment Association (targeted absolute returns sector) sales dropped from £296.5 million in January to £128.8 million in February 2017. There are concerns about the UK all companies sector which declined for the second month in a row with outflows of £219.9 million in February 2017. Naturally, many attribute these negative factors to the Brexit.

UK Banking Sector Performance over the past 30 Days

• Bank of Ireland is down 3.23%
• Barclays Bank is down 4.30%
• HSBC Holdings is down 3.17%
• Lloyds Banking Group is down 3.49%
• Royal Bank of Scotland Group is down 2.87%
• Standard Chartered 7/3/8% is down 2.68%

The best performers in the UK banking sector over the past 30 days include the following:

• Standard Chartered is up 0.36%
• Santander UK B shares are up 2.14%
• BGEO Group is up 10.34%
• Banco Santander SA is up 4.71%
The GBP/USD pair is currently trading at 1.2488, down 0.43% or $0.0055. Recall that a poorly performing GBP leads to a strong performance of the FTSE 100 index. Since most of the revenues derived on the FTSE 100 index of foreign, they are worth more when the GBP is weak. Poor Manufacturing PMI data in the UK has weighed on the GBP, with the GBP plunging to 54.2 in March (a 4-month low), down from 54.6 in February 2017. Consensus forecasts for the March PMI data were 55. The data has a negative effect on the GBP.

 

 

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Brett Chatz

About Brett Chatz

Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for spreadbettingreview.co.uk.

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