Last month, Schroders launched a charm offensive after respected financial planner Philippa Gee announced she would no longer recommend its Income Fund.

Using social media platform Twitter to gauge the views of her adviser peers, Gee claims the fund has become an oxymoron.

She says, ‘On paper it stands by its investment principles, takes contrarian views and maintains the same approach, despite a change in managers. Yet, it has produced poor returns for an uncomfortable period of time and shows no sign of a turnaround.’

Underperforming 
Gee also notes that the fund has underperformed in rising markets but also underperformed in July which should be described as a falling market.

So with the UK Equity Income being a competitive space, with plenty of funds to choose from, What Investment put the high-profile IFA’s concerns to Nick Kirrage who manages the fund with Kevin Murphy.

Kirrage says the fund he and his colleague runs has an 18-year track record, which shows that advisers like Gee shouldn’t be worrying.

The difficulty, though, is that Kirrage has only been joint lead manager of the fund since May last year and the performance over this timeframe hasn’t been great.

He attributes this to the style of the fund that is ‘inherently a long term strategy, not turning over the portfolio on an aggressive basis'. 

He explains, ‘The market has decided it would like different stocks to the ones that we own. That is the big drawback of a value investment strategy. You know over five or ten years, you would have done very well doing this, but there are quarters or years when the market doesn’t like the stocks. We have gone from hero to zero.'

By the book
Kirrage admits that the past year’s performance has been difficult, but says that the risk committee and head of equities (Richard Buxton) is comfortable with the portfolio’s positioning.

He explains, ‘The thing that will determine whether we are great investors over the long term is our mindset. To be unemotional in a market that is always fearful or greedy is all in the mindset – the ability to be contrarian and challenge yourself the whole time.

‘Warren Buffet is one of the most high profile value investors - the father is Benjamin Graham who was around in the 1930s. He wrote the bible, The Intelligent Investor and we model ourselves on a Benjamin Graham approach.

‘It is at times like these, I am not going to sit here and say Kevin and I are the best accountants in the world. But we have had a pretty long apprenticeship when it came to investment and hope that some of that has rubbed off.’

The IFA that shone the spotlight on this fund – Philippa Gee – also spoke to Kirrage directly when Schroders hastily arranged a conference call after her social media outburst.

However, Kirrage’s explanation has failed to satisfy Gee, who says that a good proportion of her clients are concerned about the dividends because they need an income and are retired.

She says, ‘Many investors are interested in the dividend story, often taking more of a wealth preservation stance, than a wealth accumulation one. For these investors, there are other, more suitable funds out there.

‘While I am pretty certain that there will be a time when the market environment suits this fund and makes it attractive, I am not prepared to bet my client’s hard earned money on it.

‘For times when a more aggressive risk-taking approach is required, there are plenty of other areas and funds I would consider first.

‘Despite the good intentions of the fund managers, I simply cannot recommend this fund at this point, there are just too many reasons not to.’ 

Read more on this subject in the next edition of What Investment, out on 1 September 2011