25th January 2016
The amount of cash languishing in underperforming investment funds has jumped to £18bn, from £17.6 last July, according to new research.
The latest Spot the Dog report from investment group Tilney Bestinvest, which names and shames under-achieving funds, shows that there are now 54 vehicles – up from 37 – in the doghouse.
The analysis is based on data up to 31 December 2015 and highlights the investment funds which have underperformed for three consecutive years on the trot and by more than 10% over three years.
The area with the largest number of dog funds remains the same as it has been over the past 24 months: Global equities, with 18 funds representing 14% of the universe. But the market with the highest ratio of dogs as a proportion of the universe continues to be North America, where 20 dog funds in the kennel represent 18% of the sector universe.
The report noted that the record of active fund managers in the US equity market is so dismal, even billionaire investor Warren Buffer has admitted that on his demise the advice he would leave to the trustees of his wife’s assets would be to “invest 90% in a very low cost S&P 500 index fund.”
The worst culprits…
When ranked by number of funds in the report, the unwanted trophy of ‘Top Dog’ is with Aberdeen Asset Management with 11 of its funds in the table. However, the real picture is even worse, as it is also the underlying manager for a further seven other funds.
The firm runs three dog funds for Scottish Widows, two for Halifax and one each for TU Funds Managers and St. James’s Place.
However the fund house with the largest assets under management within dog funds remains Prudential-owned M&G with £6.4bn.
The fund house has held this position for the last three consecutive reports from July 2014. This is due to the continued woes of its former flagship M&G Recovery and M&G Global Basics funds, along with M&G North American Dividend Fund and the M&G Global Recovery Fund.
It is not all bad…
On a more positive note, there are some sectors, which have relatively few dog funds. In UK Equities, which combines the IA UK All Companies and UK Equity Income sectors, only eight funds out of a universe of 246 were dog-collared.
Many UK equity managers have outperformed the FTSE All Share Index in recent years by underweighting, or completely avoiding, the problematic sectors of oil and gas and mining stocks, unlike index trackers that have remained fully exposed. Europe is another area where dogs funds are a rare breed, with only four funds rounded up as mutts out of 97 funds.
While many groups will from time to time have an unruly pup in their fund range, notable absentees amongst larger groups include: AXA, Artemis, Baillie Gifford, Baring, BlackRock, Columbia Threadneedle, First State, Henderson, Invesco Perpetual, JO Hambro CM, JP Morgan, Liontrust, Man GLG, Neptune, Old Mutual, Royal London, and Standard Life Investments.
Jason Hollands, managing director at Tilney Bestinvest said: “Spot the Dog is a reminder that not all investments turn out to be a resounding success – to put it politely – and a few can turn out to be disastrous. It is imperative to keep a close eye on your portfolio, periodically giving your investments a review. Do not assume that going with a big brand fund group is any guarantee of healthy returns – it isn’t. Even funds that were once very successful and popular with professional advisers can go off seriously off the boil.”
“It is important to stress that this is not a ‘Sell’ list but if you own a fund in it, you should certainly investigate whether to persevere or switch elsewhere. There are many reasons why funds go through periods of poor performance, some of which the fund house may already be addressing. For example there could be a new fund manager in place or a change of investment approach.”
Hollands added that in other cases a particular style, such as ‘value’ investing, may have been temporarily out of vogue with the prevailing market climate.
However he said: “If there is nothing to convince you that prospects are improving, don’t let inertia get the better of you and consider a switch to a fund of better pedigree. These days fund switches can usually be executed very easily and inexpensively online.”