The 'dog' funds to avoid
Not everyone can beat the benchmark, and the league tables reveal that some funds have had a torrid time over the last 20 years. The bulk of the poor performance came from asset allocation rather than individual stock decisions.
By far the worst performers have been Japan funds, which performed reasonably well over the last year, but appallingly over every other period for 20 years.
The bottom three funds overall are SLFC Japan Trust, which lost almost 39% over the last 20 years, BlackRock Japan and M&G Japan, which both lost 31%.
None of these have done much worse than the Japan benchmark in this time. The market was nearing the peak of an asset bubble in 1990 – in which investors and advisers alike were attracted by the seemingly never-ending growth in the region.
The collapse in 1991 lasted over a decade. Shares hit the bottom in 2003, then rallied briefly before hitting new lows in 2008. What has become known as the 'Lost Decade' had a big role to play in Japanese fund woes.
Meanwhile, ethical funds have sometimes struggled. Two of the worst performers in the UK Equity sector are Sovereign Ethical (which made 171% over the period) and Scottish Widows Ethical (which made 182%).
Meanwhile, Insight Evergreen was the worst performer in the Global Growth sector, making just 109%.
Patrick Connolly, spokesperson for AWD Chase de Vere, points out while ethical funds can do well, their restricted investment universe means they miss out on growth focused in particular areas.
Elsewhere, stock selection played its part. Halifax Special Situations was the worst performer in the UK Equity sector, making just 107% in 20 years.
Connolly says this is always a risk with aggressive specialist funds, as those at the bottom of the tables are often taking as big a risk as those at the top of the tables – the risk just hasn't paid off.
However, Darius McDermott, managing director of Chelsea Financial Services, stresses this fund is a consistently poor performer.
Read our article on the top performing funds over 20 years.
How to choose the right funds for you
Picking a fund is more complex than simply finding a fund that has consistently done well. It also needs to be a fund that suits you. There are several things that can make a fund a 'good' or 'bad' investment choice for you. As a guide, ask yourself the following questions:
- How much volatility am I comfortable with?
- What is my time horizon?
- Do I need income or growth?
- How much do I have to invest?
- What proportion of my portfolio will this fund represent?
- Does it help diversify my portfolio?
A standard by which something is measured, usually the performance of investment funds against a specified index, such as the FTSE All-Share. Active fund managers look to outperform their benchmark index. Cautious fund managers aim to hold roughly the same proportion of each constituent as the benchmark, while a manager who deviates away from investing in the benchmark index’s constituents has a better chance of outperforming (or underperforming) the index.