FSA table 'detrimental to consumers'

INVESTORS will continue ploughing cash into poorly performing funds unless they are encouraged to take track records into consideration, according to a new report. The findings will re-ignite the ongoing row over whether the past performance of unit trusts has any bearing on future returns.

The Financial Services Authority (FSA), the City watchdog, ruled out any link and last year launched comparative tables based on charges rather than past performance. But the Association of Unit Trust and Investment Funds (AUTIF), which commissioned the new study, says that decision was a 'mistake' and 'detrimental to consumers'.

The FSA commissioned its own research in 1999 and 2000 before deciding to exclude past performance from its influential tables. But economic consultancy Charles River Associates, which undertook the most recent report on behalf of AUTIF, questions those findings after studying dozens of similar reports published over the past 30 years.

Richard Saunders, Director General of AUTIF, said: 'This study, the most comprehensive of its kind, demonstrates conclusively that taking investment decisions without access to past performance data is unwise. We believe the FSA should now reconsider this decision.'

AUTIF accepts a good track record does not automatically lead to continuing out-performance but insists history can be a useful guide. Many independent financial advisers agree, claiming performance depends on the skills of fund managers and the resources put at their disposal.

Critics, however, say picking active funds is a lottery and that investors who do not have the time to constantly monitor fund management news would be safer with a passive fund that tracks the market as a whole. Less scrupulous advisers have been criticised for urging investors to pick only active funds, which are more lucrative for advisers but carry high charges for investors.

The new research argues that many studies in the US have drawn past performance links. It concludes that poor performers were likely to remain so but top performers were less likely to retain their positions.

The FSA ruled out reviewing its stance on performance tables 'on the basis of one report'.

Controversy over Isa website

FSA comparative tables