‘Dog’ investments are hiding in the undergrowth of soaring markets warns Bestinvest

03 February 2018
 

New report identifies £6.4 billion languishing in consistently poor performing funds

Bestinvest, the online investment service, is set to publish the latest edition of its controversial bi-annual Spot the Dog report this weekend. The report will ‘name and shame’ consistently poor performing funds that invest in the stock markets, during a peak period when investors are busy topping up investments in Individual Savings Accounts and pensions.

The 26 funds named in the latest report, some of which are run by the UK’s most prominent investment groups, are all open to individual investors and are collectively valued at £6.4 billion. Each fund has underperformed the market it invests in for the last three calendar years on the trot and by more than 5% over the entire three-year period which Bestinvest says represents the “worst of the worst” with many other funds delivering pedestrian performance. Encouragingly however the latest report contains the least number of funds Bestinvest has labelled “dogs” for several years.  

Who is the St Bernard’s of the industry?

The ‘Top Dog’ in this edition is Aberdeen Standard Investments, the mega-sized money manager created last year from the merger of Standard Life and Aberdeen Asset Management. It leads the pack of shame with both the most number of dog funds, four, as well as the largest value of underachieving assets at £1.75 billion. However, this is nevertheless an improvement from the 11 funds managed by Aberdeen Asset Management alone that were in the kennel two years ago. As the integration of the Aberdeen and Standard Life businesses continues, we suspect there will be opportunities for the new business to merge away some of these funds.

In a distant second place with £955 million is the fund giant Fidelity. It was completely absent from the last edition, but after a ‘ruff ride’ has come back into the spotlight mainly due to a previous dog fund that had gone ‘walkies’ returning to the kennel: the Fidelity American fund. The fund saw a change of master last summer with a new fund manager handed the lead, so it remains to be seen whether they can bring the unruly fund to heel.

Funds which invest in shares from across the globe have seen a particularly sharp reduction in their representation in the report, dropping from 17 funds six months ago to just 7 in the latest report. Bestinvest believes this can be explained by a particularly strong run over the last year from Emerging Markets, Asia and Europe versus the US stock market. This has helped lift a number of funds out of the tables that had previously lagged the major global benchmark indices because they held less in US shares than the benchmark indices.

While the drop in the number of dog funds is clearly good news, Bestinvest is cautious about predicting their extinction. In the last few editions Bestinvest had noted that dog funds in areas such as UK Smaller Companies and Emerging Markets had gone the way of the Dodo. However, the latest issue sees new litters of funds in both these areas.

Jason Hollands, Managing Director at Bestinvest, said: “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.

“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. The median return across all dog funds listed in the latest report during 2017 was 10.8% and only one fund actually failed to make investors any money and that was flat rather than a loss maker. In rocketing Asian and Emerging Markets, you could have even experienced returns of over 20% last year in dog funds. Rising markets are likely to convince many investors that the fund managers their money is with are doing a rather good job when in fact they have detracted from the potential returns that could have made elsewhere.

“However, the long bull-run investors have enjoyed will not last forever. When markets enter a more challenging period, as they will do at some point, being invested in laggard funds that charge fees but add no value could mean staring at actual losses. If you own funds in ISAs or pensions, it is therefore vital to periodically check how they are performing compared to the overall performance of the markets they invest in and against the competition. Do not assume an investment fund that has risen in value is necessarily in good health. Reviewing the investments you already own is a particularly sensible thing to do ahead of committing any new money to ISAs or pensions before the tax year end.”

Readers offer: Members of the public can get a free copy of Spot the Dog by downloading it from www.bestinvest.co.uk/dogs or calling 020 7189 9999. Spot the Dog is on Twitter! Follow him @Spot_theDog

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Important information:

Please note that Spot the dog is intended purely as a representation of statistical data.

The value of investments, and any income derived from them, can go down as well as up and you may get back less than you originally invested. Prevailing tax rates and relief are dependent on your individual circumstances and are subject to change. This press release does not constitute personal advice. If you are unsure about the suitability of any investment, you should seek professional advice. Past performance is not a guide to future performance.

Different funds carry varying levels of risk depending on the geographical region and industry sector(s) in which they invest. You should make yourself aware of these specific risks prior to investing.

About Tilney

Tilney is a leading investment and financial planning group that builds on a heritage of more than 180 years.  Our clients are private investors, charities and professional intermediaries who trust us with over £23 billion of their assets. We offer a range of services including financial planning, investment management and advice and, through our Bestinvest service, a leading online platform for those who prefer to manage their own investments.

We have won numerous awards. Tilney has been awarded Best Conventional Advisory Service at the 2018 City of London Wealth Management Awards, Best Advisory Service in the 2015 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. Bestinvest was voted Best SIPP Provider and Best Fund Platform at the 2017 City of London Wealth Management Awards, Best Direct SIPP Provider at the YourMoney.com Awards 2017, Best Stocks & Shares ISA Provider at the 2017 Shares Awards, as well as Best Self Select ISA Provider, Best Online/Execution-only Stockbroker and Best Investment Platform 2017 at the FT and Investors Chronicle Investment and Wealth Management Awards, as voted by readers of the FT and Investors Chronicle.

Headquartered in Mayfair, London, the Tilney Group employs over 1,000 staff across our network of 30 offices, enabling us to support clients with a local service throughout the UK.