The number of ‘dog’ funds has dipped from 41 to 34, according to Tilney Bestinvest's latest Spot the Dog report. As a result the amount of money held in serial underperformers has also decreased, from £8.6 billion to £7.6 billion.
The biannual report, which names and shames active funds that for three consecutive years have underperformed their respective benchmark index and also underperformed by more than 5% over the three-year period, notes that the number of UK dog funds has dropped from six to one – with St James’s Place Equity Income fund the outlier.
Global funds dominate the list of underperformers, with 17 funds featuring, accounting for £3.6 billion of assets. The five worst performers in terms of relative three-year returns are: Neptune Global Income, Aberdeen World Equity Income, St. James's Place Ethical, Liontrust Global Income, and Aberdeen World Equity.
In terms of assets, the two biggest fund dogs are the £1.3 billion Aberdeen Asia Pacific Equity fund, overseen by Hugh Young, and the £1 billion St James’s Place Equity Income fund, run by boutique RWC. For the latter fund its ongoing costs, which stand at 1.61%, are described as ‘hefty’.
Aberdeen Asset Management, which is in the process of a tie-up with Standard Life, is top dog in terms of disappointing assets, with £2 billion held in underperformers – five funds in total. In second place is St James’s Place, with three funds representing £1.7 billion of assets, followed by Henderson, with three funds totalling £1.2 billion.
Two sectors escape the dog house: UK smaller companies and emerging markets. Meanwhile, fund managers that have managed to avoid the hall of shame altogether include Aviva, Artemis, Baillie Gifford, Barings. BlackRock, BMO Global (F&C), Invesco Perpetual, JO Hambro, Kames Capital, Man GLG, Old Mutual, and Royal London.
Jason Hollands, managing director at Bestinvest, says it is important to note that the filters used are only designed to highlight the "worst of the worst", so therefore there will be a great many more pedestrian funds out there, including closet trackers that largely follow the index but charge excessive fees for doing so.
He adds: "Their performance may not be amongst the very worst, but such funds represent poor value for money. A real challenge for investors is that equity markets have delivered such strong returns in recent years, boosting the value of funds which have lagged the market; this has masked the lack of value added by some managers and will have left many investors unaware that they could be doing considerably better elsewhere.
"It is therefore vital to thoroughly review your investments periodically to make sure you are in funds that can truly justify the fees charged."
This article was written for our sister magazine Money Observer.