Jupiter's Ecology fund has been dropped from a list of 150 favourite funds compiled by UK investment supermarket Hargreaves Lansdown, which said it had lost its conviction that manager Charlie Thomas can outperform.
"In our view, the manager has not demonstrated strong enough stock picking ability to deliver returns significantly ahead of the wider global market for the level of risk taken," according to a note on Hargreaves' website by its analyst Kate Marshall.
She produced Lipper figures showing that while the £452 million ($691.3 million) fund has outperformed the FTSE ET 100 index of environmental technology stocks, it has underperformed the FTSE World for four of the last five years (see box).
Jupiter Ecology Fund's performance
As a result, Hargreaves has removed the fund, which invests globally in companies offering solutions to environmental problems, such as natural resource scarcity, water shortages and pollution from its 'Wealth 150' list of its favourite funds for new investment, although it will continue to offer the fund to investors through its platform.
"Following a recent review of the fund, we no longer have conviction that the manager can outperform wider global markets, or our other favoured funds in this sector, over the long term," she added.
Hargreaves is a major retail player in the UK. At the end of 2014, it had £49.1 billion under administration or management on behalf of private investors.
Thomas is widely respected as a pioneer of environmental fund management. In an interview with Environmental Finance at the end of last year, he said the recent underperformance had been caused by the fund's bias towards smaller stocks, but maintained that the outlook for the sector remained "super good".
Marshall argued that since taking over in 2003, Thomas "generally performed well against the broader global market over his first four years of management". But since the 2008 financial crisis, its performance had been "mixed".
She conceded that the fund specialises in a niche part of the market, which is more volatile than most, and it has a relatively concentrated portfolio of around 70 to 80 holdings, with "a significant bias towards higher risk small and medium-sized businesses".
"Both these characteristics could offer the manager more opportunity to add value through stock selection over the long-term – however, we do not feel this has been achieved, as supported by our analysis of the fund."
She concluded: "We rate Charlie Thomas as a sensible and experienced manager in this specialist area of the market, and we feel this fund remains a reasonable choice for socially responsible investing on a global scale. That said, we currently have greater conviction in a number of other funds in this sector which provide broader exposure to global stock markets."
Peter Cripps