Consistently poor performing funds worth GBP49.6bn named and shamed in latest 'Spot the Dog' report
The next couple of months are typically ‘make your mind up time’ for the UK's army of savers and investors as they look to invest in Individual Savings Accounts, pensions and Junior ISAs before the 5 April tax-year end.
But before committing hard-earned cash to an investment fund, they might want to take a look at the latest Spot the Dog report from Bestinvest, the online investment service, which ‘names and shames’ the worst-of-the-worst equity investment funds available to private investors.
The latest report has identified 119 investment duds, which collectively represent a staggering GBP49.6 billion of long-term savings. These include funds managed by some of the City’s most prestigious names who will no doubt soon be howling out their excuses as usual.
It is no mean feat to earn a place in Bestinvest’s investment kennel. To be included a fund must have met some stringent criteria.
Firstly, it must have delivered a worse return than the market it invests in for each one of the last three 12-month periods on the trot (calendar years 2020, 2019 and 2018). This is to hone in on consistent underachievers rather than those that might have had a brief run of bad luck. Secondly, it must also have underperformed the market it invests in by more than 5 per cent over the entire three year period under review – though the worst in this edition has done so by an impressively dire 42 per cent.
The report covers funds investing across a wide selection of markets, including the UK, global equities, North America, Europe, Asia (excluding Japan), Japan and Global Emerging Markets to identify “the worst of the worst”. Some areas are noticeably more prone to consistent underachievers, with the highest count – 38 funds – found in the global equities sector, representing (22 per cent of the global funds universe). Another area with a prolific numbers of dog funds is North America where 21 funds met the criteria.
However, dog funds that invest specifically in smaller companies appear to be an extinct breed. Bestinvest searched for these in the UK, North America, Europe and Japan but could find no funds that matched its criteria for inclusion.
While many of the funds in Spot the Dog are Chihuahuas, with a third of the funds identified being less than GBP100 million in size, 15 funds are classified by Bestinvest as Great Danes, each of which has over GBP1 billion of assets. These include funds that are widely held by private investors and managed by groups such as Invesco, St. James’s Place, Schroders and Hargreaves Landsown.
Jason Hollands, Managing Director at Bestinvest, says: “If your savings are tied-up in an investment fund that is repeatedly delivering worse returns than the market it invests in then, then you really owe it to yourself to take a closer look and think about whether you might be better off moving it elsewhere. The differences between the best and worst performing funds are enormous and so it is essential to choose funds very carefully and then keep a beady eye on them or opt for low-cost trackers instead. The latter won’t beat the returns of market but will closely mimic them.
“Recognising that you might have your money invested in a dog-fund is not as straight-forward as you might think. While 32 of the funds in the report actually lost investors’ money over the last three-years – the worst by -41 per cent! - most of them didn’t. That’s because stock-markets in general have delivered very strong returns over the last decade and so nearly all ships have been lifted by the rising tide, even those with leaks in their hulls. If the value of your investments has gone up over the years, it is easy to assume that the fund manager has done an OK job. In reality, their decisions may not be adding any value whatsoever, though you’ll be paying them fees nevertheless.
“Of course, the past is not the future and there can be times when it might be worth hanging on. For example, if a new manager with a better track record has recently put in charge, or because you believe an approach that has been out of favour is about to make a come-back. However, if you really cannot find a convincing reason to stay-put in an investment also-ran then moving elsewhere could give your ISA or pension a new lease of life.”