Tumbling funds hit pensions cash

PENSION funds produced negative returns for the second year running, cutting into the retirement earnings of millions. The value of balanced funds, which invest in a mix of stocks and bonds, fell by an average of 11.9% last year after a 3.8% drop in 2000, according to monitor Russell Mellon CAPS.

Of the 83 funds tracked by CAPS, only a J Rothschild fund managed by Global Asset Management gained in 2001, improving by nearly 13%.

GAM stayed away from volatile equity markets, keeping more than a quarter of assets in cash and bonds, said CAPS' Alan Wilcock. Most funds maintained an equity balance of more than 80% at the end of the year.

Other funds rounding out the top five produced negative returns, but outperformed the FTSE All-Share index, which fell by 13.3%. Phillips & Drew, the fund manager that underperformed in the late 1990s, placed two of its funds in the top five.

The most successful funds tended to favour old fashioned value shares rather than growth stocks. 'The winners all had good stock selection and a highyield bias,' said Wilcock.

Such a strategy vindicates the theories of former P&D investment boss Tony Dye, who questioned the longevity of the technology boom. Dye was ousted in early 2000.

But axing a senior manager may not help a fund's long-term performance, said CAPS chief executive Fred Settelmeyer. He claimed managers should not be judged on only one or two years' performance, adding: 'A good manager this year could be the worst next year.'

Under-performing managers should be compared only to others using a similar strategy, and evaluated over the longer term. Actively managed funds marginally outperformed the index trackers, falling in value by 13.1%.

Active funds have come under scrutiny for charging higher fees, yet failing to better the performance of the trackers.