When investment funds under perform

When investment funds under performWhen investment funds under perform, some investors are more patient and tolerant than others.

Over a third of UK investors would apparently give an under performing investment fund longer than a year to turn things around.

This is according to a new survey of investors as part of the Legg Mason 2016 Global Investment Study.

Legg Mason spoke to more than 5,000 high-net worth investors in 19 different countries to get their views on a range of investing topics.

They discovered that nearly two-thirds of UK investors aged 40 or over would sell a fund within a year of it starting to under perform.

Within that group of investors, 44% would sell the under performing investment fund within six months.

Nearly a third of investors would give the under performing fund just three months before waving goodbye!

If this seems impatient, then younger investors had even shorter time horizons.

Looking at millennial investors, who are aged 18-39, only 14% were prepared to hold an under performing investment fund for more than a year.

Overall, the most common period for holding onto a poorly performing fund was 3-6 months, which was cited by 35% of UK millennials.

Globally, the most common period for holding an under performing fund was just 1-3 months.

When it came to broader market volatility as an influencer on investment behaviour, both millennials and older investors showed more patience.

Older investors said they would tolerate a 16.7% decline in equity market valuations before re-evaluating their allocation to stocks.

They would on average tolerate an 18.6% fall in equity values before selling this part of their portfolio.

Millennials were even more inclined to hold their nerve when markets fall, evaluating their equity exposure after a 20.3% fall and selling after a drop of 23.3%.

According to Adam Gent, Head of UK Sales at Legg Mason:

“The survey reveals an interesting dichotomy between investors’ attitude to market falls and their approach to funds that underperform in the short-to-medium term.

“On one hand, investors seem willing to tolerate reasonably steep market declines before re-evaluating their equity exposure, but only a third will give a fund a year to turn performance around, and 44% just six months.

“It could be argued that this is insufficient time given that many funds have rolling return targets that stretch over years not months, which perhaps emphasises how important it is that investors understand what they hold and under what conditions they are likely to underperform.

“Investors with a firm grasp of their underlying funds, either directly or under the guidance of an adviser, are those who tend to avoid the classic investment mistakes and perform better over the long term.”

When investment funds under perform


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About Martin Bamford

Martin Bamford is a Chartered Financial Planner, Certified Financial Planner (CFP) professional and published personal finance author. He works with elderly clients to provide advice on funding residential care fees, hosts the Informed Choice Podcast and is a keen ultra runner.
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