Spot the dog – deceptively poor performing funds named and shamed

5 February 2018
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Investors are being warned to watch out for the latest ‘dog funds’ hidden by soaring stock markets.

Data published by online investment service Bestinvest has named and shamed 26 funds in its latest “Spot the Dog” report.

According to the firm, these funds – which have underperformed the market they invest in for three consecutive calendar years from 2015 to 2017 and by more than 5% over the entire period – are all open to individual investors and hold a collective valuation of £6.4 billion.

Bestinvest says its list represents the “worst of the worst”, despite many other funds also showing “pedestrian” performance.

The three worst performers, were SF Webb Capital Smaller Companies Growth (down -45% or £80 from £100 invested), Neptune Global Income (down -20% or £123 from £100 invested), and UBS Global Enhanced Equity Income (down-19% or £123 from £100 invested).Other dog funds include several from well-known investment houses. Aberdeen Standard Investments, for example, the company created by the merger of Aberdeen Asset Management and Standard Life last year has four funds on the list, holding a total of £1.75 billion.

These include Aberdeen Standard’s UK Equity and UK Equity Income funds, which returned just £125 (-6% below the benchmark) and £121 (-9% below the index) respectively, on a £100 investment over three years.

However, Bestinvest points out that this is a considerable improvement for Aberdeen which had 11 funds on the list two years ago.

Jason Hollands, managing director at Bestinvest explains the problem with spotting poor performing funds in the current market cycle: “For investors, spotting a seriously underperforming fund has become incredibly difficult in recent years. Soaring stock markets mean that even funds that have lagged far behind have still made strong positive returns.”

 ‘Pedigree’ funds revealed

At the other end of the scale, Bestinvest’s so-called ‘pedigree picks’ include Moneywise First 50 fund Liontrust Special Situations, which returned 16% return above the benchmark or £154 on a £100 investment, and LF Lindsell Train UK Equity Income, with a 13% return above the benchmark or £150.

The latest list also has the smallest number of dog funds named in several years. Funds investing in global equities, in particular, have seen a sharp reduction in numbers on the list, from 17 funds six months ago, to just seven now.

Mr Holland adds: “In the last five years the number of dog funds has been as high as 60 and only two years ago there was as much as £18 billion tied up in such investments.

“The drop in the number of both dog funds and the amount of investor money in these is very welcome. Only time will tell whether this is a temporary blip or a sign that the investment industry has got its house in order by replacing underachieving managers or merging away seriously failing funds.” 

Comments

In reply to by anonymous_stub (not verified)

I'm guessing that the reduction in the number of dog funds overall might be attributed to homogenization across the market - fund managers spotting each other's good picks? Also, maybe an increase in the number of tracker-type funds that aim to hit the average?

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