Why did Swip's European experiment fail?

Swip decided to close its Sicav last week, with the group’s European managing director Christian Elsmark citing a lack of investor interest.

Swip has massive distribution in the UK through the Lloyds banking network and Scottish Widows insurance. Yet oddly the pan-European fund selectors did not bite.

As our Citywire Global sister publication points out, to get onto recommendation lists in mainland Europe, a provider needs a unique selling point - which for the big European investors means talented fund managers in key asset classes.

In other words unlike in the UK where Swip can be confident of strong sales through its massive distribution in Europe it was forced to stand on its own investment merit - and as it turned out it struggled to do that.

Looking at the performance data which is still available for some of the funds, the Swip Sicav Emerging Markets fund, which is now closed and was managed by Mike McNaught-Davies since April of this year following Kim Catechis’ departure to Martin Currie, posted a return of 28.9% over the 12 months to the end of June compared to a 33.3% return by the average manager in the sector. This gave it a ranking of sixtieth out of the 77 funds in the Lipper Equity Emerging Markets Global Sector for the 12 month-period. Over the three years, the fund was ranked thirty-ninth out of 54 funds in the sector with a return of 15.4% over the period, while the sector average was much higher at 25.2%.

Likewise, the Swip Sicav European fund managed by Steven Maxwell was around €2.1 million at the end of April and posted a 28.6% return over the past year, while the MSCI Europe (net dividends reinvested) index was up 32.8% over the 12 months to the end of April.

The Swip Sicav Euro Absolute Return fund, another fund that has been liquidated, outperformed the benchmark with a 6.7% return over the 12 months to the end of April while the 3 month Euribor was up 2.9% over the same period. Since the fund was launched in June 2007 it posted a 3.5% return, underperforming the 5.3% rise by Euribor.

Underperformance across some of the funds could certainly be attributed to manager turnover at the firm which has been significant over the past year. Key departures included emerging markets managers Catechis and Alastair Reynolds, who now head up Martin Currie's global emerging markets team, alongside former SWIP Latin American manager Jeff Casson and Andrew Ness, who ran the company's global emerging market small cap fund and Divya Mathur who managed the firm's Emerging Markets Infrastructure fund.

This was acknowledged by Elsmark: 'Having made the decision not to continue our emerging market strategy as part of the Sicav, we decided subsequently to close the rest too.'

While Rory Hammerson, former manager of the Swip Sicav European and European Smaller Companies funds also represented another key departure for the firm.

So Swip can justifiably argue that the, no doubt unexpected, departures of these teams scuppered its plans. Yet, we must also acknowledge that a firm of this size ought to have enough clout to have a compelling proposition in Europe, if it is such a major force in the UK.

It is impossible to escape the conclusion that Swip's sales in the UK are being driven by distribution and not performance. There is still an investment job to be done on this firm before we could say that it can stand on its investment merit.