Latest 'Spot the Dog' report reveals record value of assets in underperforming funds.
Investors have an eye-watering £33.6 billion in so-called dog funds, as the amount of money in underperforming funds increases fivefold.
The latest Bestinvest Spot the Dog report names and shames the investment funds that have underperformed for three years in a row and by more than 5% over three years.
Some 58 funds have been named in the latest edition of the report. It is more than double the number of funds named in the last edition six months ago, and the highest number of dog funds since 2015.
Investors have a hefty £33.6 billion of their money tied up in these underperforming funds. That”s up from just £6.4 billion six months ago and is the largest sum on record to be held in dog funds.
Jason Hollands, managing director at Bestinvest, says: “In the previous edition of Spot the Dog we questioned whether dog funds were under threat of extinction, as just 26 funds with £6.4 billion of assets featured – the lowest level we can recall. We had welcomed this turn and hoped it would prove a sustainable trend rather than a mere blip.”
In the latest report, fud group Invesco Perpetual accounts for a massive £15.1 billion of underperforming investments. It has the great number of funds in the dog house.
The latest edition of the report uses data to 30 June 2018. Funds named as dogs have failed to beat their relevant benchmark for three consecutive 12-month periods and have also underperformed by 5% or more over the entire three years.
Invesco Perpetual had no funds named in the previous edition of the Spot the Dog report, but this time it has five funds in the pack, including its popular £9.4 billion High Income and £4.5 billion Income funds. These two funds account for a whopping 45% of the total dog fund assets.
Aberdeen Standard Investments also has five funds in the group.
In total, seven of the 58 funds named in the report have assets of more than £1 billion each, but the median dog fund size is £137 million.
The investment sector with the greatest number of dog funds is the global sector, with 19 funds in the list. That's concerning at a time when investors are scouring the globe for opportunities.
The UK equity income sector is close behind with 18 – a sharp increase from the two UK equity income funds featuring in the last report. Bestinvest points out that many of these funds have income strategies, and these have struggled to keep up while growth funds have thrived in recent years.
Other sectors performed better, however. There are no global emerging market funds in the report, just one fund from the UK smaller companies sector and four in the North America sector.
Mr Hollands adds: “There are numerous reasons why a fund might hit a period of relative underperformance, so it is important to delve deeper before deciding to move your cash elsewhere.
“In some cases, bad decision-making is at fault and the case to move on makes sense, but in others a previously sounds investment process may be out of favour with market trends, in which case some patience is required.”
Nick Mustoe, chief investment officer at Invesco Perpetual, says: “The performance of the UK equity funds has been particularly adversely affected since the EU referendum. The strategies are weighted toward stocks that generate income from UK sourced revenues, an approach that has lost favour in a climate of political and economic uncertainty. We believe that the negative market reaction has been excessive and, in many cases indiscriminate, and that there are now significant opportunities for selective investment in a number of high-quality companies that will deliver superior shareholder return in the medium to long-term.”
For ideas on how to build a portfolio using top-performing investment funds, check the Moneywise First 50 Funds for beginner investors.
This article first appeared on our sister website Money Observer.