Money News

Some investment managers are way behind.
Is your money invested in a Dog? Put it another way, would your money have done better if the shares it was invested in had been picked with a pin? ‘Dogs’ are investment funds run by managers who have used their skill and judgement to pick shares to invest their clients’ money in – but have produced a worse return than if they had simply picked the shares at random from those listed on the local stock market. The term was invented by Independent Financial Advisers BestInvest which has a cold nose for sniffing out the funds that have done worst. At the start of 2004 it published its latest list of ‘Dogs’ – a sort of Crufts for Worst in Show.

Bestinvest Dogs have not just done worse than the stock market average – they have done worse for each of the last three years and have produced a ‘return’ for their investors which is at least 10% worse than they would expect by chance. The particular stock market used for the comparison depends on where the fund invests its – or I should say ‘our’ – money. If it is a UK fund then the benchmark is the FTSE index of about 750 shares in the ‘All Share’ index. If the fund is invested in Asia, Japan, or North America then it is compared to the local index of shares in that region. Over the last three years most markets have fallen. But the dogs did much worse, losing far more money losing far more money for their investors. The graph shows that while the UK All Share index fell by 19 per cent the clever people at Solus Special Solutions managed to lose their clients 43% of their money and the managers running Abbey National UK Growth may want to rethink the name after the fund shrank by more than a quarter.

Blue = index;

Green = biggest Dog fund in region; Red = worst Dog fund in region;

Green/Red = biggest and worst Dog fund in region

In January 2004 BestInvest analysed 955 managed funds and found that about one in seven was a Dog. These 133 Dogs had £15.4 billion of our money invested in them. Despite charging their investors for the work they do, the expensive managers and their research departments only succeeded in losing their customers more money than if they had picked the shares with a pin.

Among the biggest packs of dogs were with Scottish Widows Investment Partners which had £2.2 billion of our money invested in dogs; Abbey National and Canada Life had at least half our money in Dogs - £2.3 billion between them. And Henderson and Invesco Perpetual both had more than £1 billion in Dogs.

If you have money in a Dog you should consider moving it. Research by the Financial Services Authority shows that poor fund performance tends to persist – in other words bad performance in the past is a good guide to bad performance in the future. Unfortunately the opposite is not true – good performance even over five years is not guide to whether the fund will perform well in the following year.

Get the Spot the Dog guide free from www.bestinvest.co.uk or on 0800 093 0700

Puppy love
And talking of dogs, how much do you love your pet? A lot? Loads? Or billions? A survey by Sainsbury’s Bank calculated that people in the UK spend more than £11 billion a year – that’s about £350 every second – on their cats and dogs. Every cat costs us £475 a year and a dog costs £981. Food is the biggest expense – more than £7 billion a year – but we spend £1.75 billion on ‘treats and presents’ – which is rather more than the £1.24 billion we spend at the vet. No wonder they are our best friends.

Stay and pay or switch and save
If you pay the gas and electricity bills you will have noticed big rises. Powergen, British Gas and nPower have all raised prices by more than 5 per cent in the last few months. They blame increases in wholesale price of fuel and other suppliers are expected to follow their lead.

But most people are wasting money because they have not changed the company that supplies their gas and electricity. The National Audit Office estimates that 60 per cent of customers have never changed their supplier. As a result they are paying an extra 22% on their fuel bills. The consumer body Energywatch estimates that the average household can save £100 a year by switching supplier. And they stress that it is the same gas and the same electricity running through the same pipes and cables. It is just the company that bills you for it which changes. You can usually save a bit more if you get your gas and electricity from the same company – that is called ‘dual fuel’.

Energywatch can help you work out which is your cheapest supplier. In exchange for your postcode it will give you a table of prices from each supplier in your. You can call its consumer Helpline on 08459 06 07 08 – or do it online at www.energywatch.org.uk The website also has link to enable you to work out the precise savings and switch on line.

If you do not want to change supplier you can still save money by changing the way you pay. If you pay on a normal credit bill and write a cheque or pay by giro, you can save up to 15 per cent if you change your payment method to direct debit. And you can save even more if you are willing to get your bills and pay over the internet.

Taxman takes a tip from nurse
Hospital patients or their relatives often want to leave a gift to say ‘thank you’ to the nurses. But be careful if you give money – you could find that a third of it ends up with the taxman. Such gifts are counted as tips – and whether they are left for a waiter or a nurse, tips count as part of their wages and are liable to tax at 22 per cent and National Insurance at 11 per cent – so a third can disappear.

This rule came as a nasty shock to nurses at Derriford Hospital in Devon before Christmas. Last December the local Inland Revenue office presented the Plymouth Hospitals NHS Trust with a tax bill – not just for 2003/04 but for previous years as well. Instead of having £900 in their account, the nurses had an overdraft of £44! So if you want to say thank you to the nurses on a hospital ward it is safer to give them a bottle of wine or a plant. They at least are not taxed. Yet.

Charges for all to see
Be careful when you take money from a cash machine that you are not charged for the privilege of taking your own money from your own bank account. There are 44,000 cash machines in the UK in the LINK network. All the major banks and building societies offer free cash withdrawals from the machines on their premises and they account for nearly three quarters of the LINK machines. But around 12,000 cash machines are owned by private companies which do make a charge – typically £1.50 however much cash you withdraw. These machines are located in smaller shops, garages, pubs and some motorway service stations. From April 1^st all cash machines that carry the LINK logo will have to tell you either on the display material around the machine itself or on the screen before you put your card in that you may be charged. And before the charge is made you will have to be told on screen as well how much the charge is and that it will be debited to your account.

Also remember that free cash withdrawals only apply to money taken out with cash or debit cards. If you use a credit or store card to take out cash there will be a cash advance charge made by your card provider. And if you use your card abroad to take out local currency, then almost all banks and building societies charge for this service.

Where is the Treskilling Yellow? A unique Swedish stamp printed in 1855, it was sold at auction in New York on 9 November 1996 for around £1.4 million. All other known examples are green. Less than one inch square, it is the most valuable object by weight in the world. Apart from an outing to a stamp exhibition in 2001, it has disappeared into a private collection in Denmark and may not be seen again for decades – the fate of many unique stamps. Some people buy them because they love them. But some buy stamps as an investment. Graham Royan is a partner in Doreen Royan & Associates in Johannesburg, South Africa. "Stamp collecting is known as hobby of kings but it is expensive. It is a hobby and it is a growing industry and is attracting investors." Some of his clients never collect the stamps they buy. "Maybe 20 to 30% of our investors do keep their stamps here. It is mainly security – we have collectors all over Africa. It is not they are not interested, they keep a file and we provide colour photocopies." One of the world’s unique stamps – he won’t say which one – is in his safe now owned by an investor who has never seen it.

In the UK dealers are more cautious. Graham Childs is an auctioneer at the top London stamp auction house Harmers. "We really don’t recommend stamps for an investment it is a hobby it should be fun, the eye to collecting not for the money but you can build up a collection of something you like and have fun and pleasure and when you come to sell it may turn out to be a good investment." He says there is a lot of interest now in postal history – airmail stamps and letters for example. And he warns that in the 1970s stamps were sold as investments but have proved a disaster. "They still come in with portfolios they bought then and they are lucky to realise a quarter of what they paid. They bought some stamps at say £1200. Today you’d be lucky to get £400."

March 2004

e-mail Paul Lewis on paul@paullewis.co.uk