What's in a name?

By DAILY MAIL REPORTER
Updated:

 

INVESTORS in UK funds may well find they have come home with a can of baked beans, so to speak, when they really wanted spaghetti hoops. This is because it is so difficult to tell what a fund invests in from its label.

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Popular funds such as ABN Amro Select Opportunities, Fidelity Special Situations and Artemis UK Growth are less diversified than you might at first assume. Although you can't tell from their names, they invest more heavily in medium to small companies than in giant firms such as BP and Vodafone. Investors should understand this, because larger firms, traditionally, have been a more steady investment than the riskier smaller companies.

It is even more crucial when share prices fall. Over the past six months, funds investing in large firms have lost less than their counterparts focusing on smaller companies.

For example, Dresdner RCM Mid-Cap, which invests only in medium-sized firms, has turned £1,000 into £700 in that time, according to analysts Standard & Poor's. In contrast, the Virgin UK Index Tracking fund, which is heavily concentrated in larger firms, was reduced to £850. But these different funds are included in the same category, the UK All Companies sector.

To join this sector, the funds must be 80% invested in UK shares and aiming to grow capital. This catch-all definition can mislead investors. Warren Perry of independent financial adviser Whitechurch Securities says: 'Firms like to advertise their funds as being top of this sector, but it doesn't make much sense because they are not comparing apples with apples.'

Clare Arber at the Association of Unit Trust & Investment Funds, which runs the fund sectors, says the association cannot regularly monitor where the funds are investing, so the definition has to be so wide.

In contrast, fund analyst Morning Star monitors fund portfolios and groups them according to where they are invested. Mark Dampier of Hargreaves Lansdown says most funds have only 40% or 50% invested in large firms, but that the giants actually represent about 80% of Britain's available shares. He says the sector groupings should be changed.

Rupert Raymond, 26, invested £1,000 of savings into the SocGen UK Growth fund in March 1998. As his first big investment in shares, he wanted his money to be actively managed, but in a conservative way, which is the reason for choosing the SocGen fund.

This fund broadly follows the shape of the wider FTSE All Share index, so it is generally more heavily invested in large firms than smaller ones. To start with the investment did well, although it has lost ground more recently in the stock market slump.

But its investments in large firms means it has held up better than some other funds. Rupert, who is a product manager for a film company in London, says: 'Everything's a bit bleak at the moment but I am taking a long-term view. I am sure it will work out in the end.'

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