According to a recent study by research company Morningstar and broker AJ Bell, pension fund managers have become the weakest performers in the asset management sector, falling short of passive products.

Less than a quarter were able to outperform far less expensive passive funds, even though these managers were in charge of hundreds of billions of pounds, which should provide them with economies of scale.

Passive funds are exchange-traded funds (ETFs) or index mutual funds that mimic an index, such as the FTSE 100, instead of using a specific investing strategy.

However, just 20% of pension funds that invested in the UK were able to beat a passive counterpart during a ten-year period. This means that four out of five people whose pensions included a UK allocation are losing out.

Nearly all UK pensions were invested in global portfolios, which were managed by the weakest performers. Only 9% of funds were able to outperform a passive equivalent, meaning that 90% of pension members would have had less money saved for retirement than they otherwise would have.

Problems at St James’s Place

Stockbroker Bestinvest's biannual "Spot the Dog" report, which identifies underperforming funds in the financial sector, shows that funds managed and suggested by St. James's Place have routinely underperformed benchmarks for seven years running.

The wealth management firm (SJP) has roughly a million clients, and even with a fee drop scheduled for 2025, it charges about double the industry average for initial advice. In addition, SJP wealth management has £12.6 billion of client money that is continuously and noticeably failing, and more investor capital than any other business in the UK is languishing in underperforming funds.

A fund must underperform a relevant market benchmark over three consecutive 12-month periods and have had a relative underperformance of at least 5% over three years, indicating that the problems are probably not just one-time events, in order to be included in Bestinvest's name-and-shame list. SJP was included in that list.

With billions in investor capital under its management, SJP Global Quality makes global investments in firms including Microsoft, Visa, and Alphabet. In spite of this, the fund has underperformed the MSCI World index, which has returned 33.3%, by just 5.9% over the past three years, net of costs.

SJP's performance metrics include advising and platform charges, unlike most of the funds in the study, whose fees solely cover management and administrative costs.

Key Notes:

• Based on Bestinvest report as of August 2024, £100 invested with SJP Global Quality Fund after 3 years would only be worth £106.  Its 3-year underperformance vs benchmark sits at a percentage of -27%.

• £100 invested with SJP Greater European Progress Fund, after 3 years would only be worth £111. Its 3-year underperformance vs benchmark sits at a percentage of -8%.

(Sources: telegraph.co.uk, ajbell.co.uk, morningstar.co.uk, bestinvest.co.uk)