'Dog funds' named and shamed
Investors are being urged to review their portfolios after a study revealed that more than £14 billion of money is tied up in badly-performing funds.
Ninety funds have been identified by financial advisers Bestinvest for underperforming their benchmarks in each of the past three years. The unit trusts and Oeics have also underperformed their benchmarks by at least 10% cumulatively over three years. In some of the worst cases the funds have actually lost investors half their money since 2007.
The worst UK and European "dog funds" include Gartmore UK Alpha, Henderson Higher Income, MFM Techinvest Special Situations and Artemis European Growth.
Further afield, the worst funds include Martin Currie Emerging Markets, Lloyd George Asia Pacific, Invesco Perpetual US Equity, JPM Global Equity Income and Legg Mason Japan Equity.
The number of "dog funds" has increased from 77 last October to 90 now. There has also been an increase in the money wallowing in the rubbish funds: in January 2009 there was just £7.2 billion, now there is £14.25 billion.
"The rise in the number of 'dog funds' is of greatest concern from our latest report," comments Adrian Lowcock, senior investment adviser at Bestinvest.
"It seems that more fund managers than ever before are underperforming their benchmarks and many investors are experiencing rank underperformance."
Bestinvest advises that if an investor has a "dog fund" in their portfolio they shouldn’t automatically sell it. "There may be valid reasons for the poor performance or it could be that the manager has recently been changed," the firm says.
Invesco Perpetual and Schroders were named and shamed as the biggest "dogs" in the investment world: they hold the most money in poor-performing funds. Invesco has £1.8 billion with its UK Growth and US Equity funds failing to deliver decent returns, while Schroders has £1.6 billion with its European and Mid 250 funds two particular duds.
Bestinvest says it is confident the poor performance at Invesco will not be tolerated for much longer by the firm and something will be done. However, it is concerned about the Schroder Mid 250 fund and thinks investors will lose patience and sell their holdings.
Henderson Investment Management, Scottish Widows and F&C Asset Management complete the top five worst fund management groups.
Open-ended investment companies are hybrid investment funds that have some of the features of an investment trust and some of a unit trust. Like an investment trust, an Oeic issues shares but, unlike an investment trust which has a fixed number of shares in issue, like a unit trust, the fund manager of an Oeic can create and redeem (buy back and cancel) shares subject to demand, so new shares are created for investors who want to buy and the Oeic buys back shares from investors who want to sell. Also, Oeic pricing is easier to understand than unit trusts as Oeics only have one price to buy or sell (unit trusts have one price to buy the unit and another lower price when selling it back to the fund).
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.