You'd think the big names in finance would have investing sewn up. With more money, resources and manpower, the Goliaths of the financial world should surely be able to trounce their smaller rivals.
But not so. In fact, as research from fund comparison website Moneyspider.com shows, the big players can't come close to catching their smaller, more nimble rivals.
Rating funds from A (best) to E (worst), Moneyspider.com found that big names, such as Scottish Widows, Standard Life, Henderson Global Investors, Legal & General, Invesco Perpetual, F & C and Fidelity have some of the worst-performing funds available. Scottish Widows alone is home to 20 out of a total of 38 funds with D and E ratings.
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Take the global growth sector. Over the past five years, a £5,000 investment in the Neptune Global Equity fund would have made the investor a profit of £8,071. Rathbone Global Opportunities comes next, with a £6,086 profit. The same amount in Scottish Widows Global Growth would have made just £662.
It "shows the importance of not automatically putting your trust in the big name fund management houses," says Moneyspider.com managing director, Bill Ross. "Small but perfectly formed houses, such as Rathbone and Neptune, can seriously reward investors who are prepared to consider unfamiliar names," he says.
But why is this the case? Because they have the most seasoned fund managers, says Mark Dampier, head of research at Hargreaves Lansdown. Most top managers leave big-name groups to set up or run their own funds with smaller outfits, such as Saracen, Jupiter, Lion Trust and Neptune, where "they have more incentives and are less likely to leave", he says, partly because they prefer the working environment. Some bigger names have begun to notice this, he says. Indeed, Old Mutual and Resolution have responded by setting up their own boutique-like structures, "taking the administration off the shoulders of fund managers", for example.
One boutique worth investigating is Jim Fisher's Glasgow-based Saracen Growth Fund (0141 248 2277). Over five years, the £200m fund has returned 203%, and is a favourite among institutional investors, who like Fisher's approach he looks for undervalued stocks no-one else has spotted. He invests in the fund the company's only one himself, meaning he has a greater incentive to do well than many of the larger players. As anyone who has invested in the fund (a list that includes the Rothschilds) can tell you, big isn't always best.
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