Artemis Capital, Standard Life Investments Cash, Axa Defensive Distribution, Axa Framlington UK Smaller Companies, Aviva Investors UK Ethical and UBS Absolute Return Bond are the latest ‘flop’ funds to be revealed by Money Observer research. 

They have all failed to deliver investors decent returns and routinely rank in the bottom quartile of their sectors.

Our research highlights 16 funds that came in the bottom quartile over each of the past three years up to 1 June, of which 10 were more than £10 million in size. Money Observer has already covered the woes of Henderson, Gartmore, Aberdeen and Martin Currie here.

Now the spotlight is on the other six and why these funds are failing to properly reward their investors.

The SLI Cash fund has delivered investors exactly nothing over the past 12 months, but has charged them a hefty fee. Its total expense ratio is 0.66 per cent, however the average TER for a money market fund domiciled in the UK is 0.49 per cent, according to Lipper FMI.

Ed Moisson, head of consulting at Lipper FMI, says the fund has a high fee and advises investors to pay close attention to charges on cash funds. ‘For money market funds, fees really must be critical in the decision-making process because potential returns are low,’ he explains.

Martin Bamford, managing director of financial advisers Informed Choice, calls the fund 'pretty dismal' and says a much better return from cash can be found in savings accounts, even in this low interest rate environment.

SLI defends its flop fund by saying it provides ‘income combined with a high degree of security’ and that some of its peers ‘invest in higher risk money market investments including asset backed securities’ which have performed well recently.

However, if it’s just investing in run-of-the-mill deposits, it’s unclear why the TER needs to be so high as it’s certainly dragging down returns.

Meanwhile Axa has two dud funds: Defensive Distribution and Framlington UK Smaller Companies.

The former seems like it has been having teething problems since it merged with Axa Cautious Managed in October 2008. In the year to 1 June it returned just 10 per cent, putting it 121st out of 137 funds in the cautious managed sector.

A spokeswoman says the £297 million fund has an ‘extra cautious objective’ and that it has performed ‘exactly the way it has been designed to perform’. 

However, over the last three years to 1 June it was also in the bottom quartile, losing investors 20 per cent, suggesting it’s not that cautious.

The smaller companies fund is also not doing investors any favours. It failed to make the most of the rally in UK smaller companies over the past year and delivered a lacklustre 22 per cent, putting it in the bottom quartile.

The fund gained a new manager in March 2008: Chris St John. Axa defends its ailing small-cap fund by saying it invests in very small funds, which didn’t perform as well as FTSE 250 companies. A spokeswoman argues that many smaller companies funds are actually more like mid-cap funds as they invest in the FTSE 250.

Over at Artemis, the Artemis Capital fund is floundering. In the 12 months to 1 June it returned only 17.5 per cent, compared to a sector average of 21.8 per cent, and over the past three years it lost almost 36 per cent of investors’ money.

This performance has shrunk the fund from a sizeable £427 million in June 2009 to £385 million now, suggesting investors have left the fund in addition to the impact of negative returns.

Manager Jacob de Tusch-Lec has also been booted off the fund with Philip Wolstencroft replacing him on 1 July. However, an Artemis spokeswoman maintains that performance was not a factor in replacing de Tusch-Lec and that he is now managing the new Artemis Global Income fund.

Wolstencroft admits to Money Observer that performance has been disappointing, and 2009 was challenging as the fund’s strategy is to ‘wait for the evidence of an improvement in trading conditions [and] we therefore tend to miss out on the initial bounce in share prices’.

It’s unclear whether Wolstencroft will be able to turn Artemis Capital around, especially as IFA firm Bestinvest has removed the two-star rating on the fund in view of his lack of a track record running UK funds.

The £206 million Aviva Investors UK Ethical fund has also performed appallingly over each of the past three years. It is in the bottom quartile of the UK all companies sector over the past 12 months as well as over a three-year timeframe.

An Aviva Investors spokeswoman says there are a number of reasons for the poor performance, including ‘the strength of commodity prices driven by the China/ India growth story and the concentration of mining companies in the FTSE 100’.

Performance has started to pick up though: in the first six months of 2010 the fund was in the top quartile with a 4.4 per cent return.

Finally, the UBS Absolute Return Bond fund has performed badly compared to its peers in the global bonds sector.

A spokesman simply puts the underperformance down to ‘unprecedented volatility in financial markets through 2008 and early 2009’.

The fund is mainly institutional though, only around 6 per cent of the fund is held by retail or private investors.