Latest Spot the Dog guide reveals 49 underachieving funds containing £19.55bn of investors’ assets19 July 2014
- Controversial report names and shames investment funds that have underperformed for three consecutive years on the trot and by more than 10% over three years
- Number of serial underachieving individual funds drops from 53 to 49 since the last edition, six months ago
- Investment Management Association (IMA) Global sector holds the most dog funds with 20 funds representing 16% of the sector
- M&G dominates the list for the second time with three ‘dog’ funds holding £10.7bn assets representing 55% of the total
- Most surprising entry is the popular Standard Life UK Smaller Companies fund, run by respected manager Harry Nimmo
- Not a single European ex UK or UK Equity Income fund was rated a ‘dog’
- Investors warned that rising markets mean many investors may be unaware they hold serial underperformers – reviewing a portfolio at least annually is key
- Readers offer: Spot the Dog can be downloaded for free at www.bestinvest.co.uk/dogs or by calling 020 7189 2400 to request a hard copy
Those tempted to make use of the increased £15,000 New ISA (‘NISA’) allowance to invest in funds or considering their choices within a Self-Invested Personal Pension should make sure they read a free copy of the latest Spot the Dog report from Bestinvest before committing their hard-earned money. Much to the annoyance of the fund management industry, the twice-yearly landmark report, ‘names and shames’ the investment funds open to retail investors which are the leaders of the pack for consistent, derisory performance versus their benchmarks.
July 2014’s edition of Spot the Dog, published this week, has identified 49 ‘dog’ funds (unit trusts and OEICs) from a number of IMA equity sectors, including some previously popular and widely held funds. The level of assets in the funds identified is £19.55 billion – slightly down from the previous edition which contained 53 funds. Each of the funds in the report met the strict criteria applied by Bestinvest of being available to retail investors and having underperformed in each of the last three years and by 10% or more over the three years.
Global and North American dogs dominate the kennel
The IMA sector with the largest number of dog funds remains the same as six months ago; the Global sector, with 20 funds (up from 15 six months ago), representing 16% of the funds in the sector. North America is another area where a significant proportion of funds are ‘dogs’ (13%), although this represents a considerable improvement on six months ago where 22% of the IMA North American fund universe were in the kennel. This once again confirms the reputation of the US as a market where the failure rate for active fund managers is high. In contrast, not a single fund in the popular Europe ex UK or UK Equity Income sectors was identified as a dog, indicating that fund managers have had much greater success in these sectors in recent years.
The groups in the Dog House
Groups with large fund ranges and sizeable assets under management are inherently more likely to feature in Spot the Dog but no group has more than three funds in the latest edition which Bestinvest argues is a positive sign. M&G, Schroders and Neptune each have three funds.
When ranked by level of assets, M&G continue to hold the top slot as they did in the January edition because of the inclusion of three large funds; £6.7bn M&G Recovery, M&G Global Basics (£3.1bn) and M&G American (£924m). The combined assets in these three funds (£10.7billion) represent 55% of overall dog fund assets in this edition.
Jason Hollands, Managing Director at Bestinvest, commented: “With stock market indices hovering around all-time highs, funds investing in equities are once again popular with retail investors as their memories of the financial crisis fade. And with the recent introduction of the £15,000 annual ‘New ISA’ allowance, which provides greater flexibility to move between cashing savings and investments, many expect more cash to flow into the coffers of the fund management industry over the coming years.
“Yet the differences in performance between funds within the same sectors can vary enormously, so it is vital to be very selective when making your choices. Once you are invested it is important to periodically review whether your investment choices are delivering compared to the competition and consider whether to persevere with them or move elsewhere.
“Many investors put up with weak or pedestrian performance by either not monitoring their investments regularly, receiving poor service from the adviser who originally recommended the investment or through simple inertia. It is a problem that is exacerbated when markets have risen strongly, as they have in recent years, as it is easy to assume that because the value of your investment has increased, that all is going well and the manager is doing a good job. It may however be the case that the value of your investment could have been much higher if the fund had kept pace with, or beaten, the overall move in the markets.
“While there are number of relatively small or obscure funds in Spot the Dog, the ones that will really raise the eyebrows are those that have been popular in the past with advisers and retail investors and these include M&G Global Basics, M&G Recovery and Standard Life Investments UK Smaller Companies.
“The jury remains out on M&G Global Basics, which saw Randeep Somel appointed as its new manager in November last year following the departure of longstanding manager Graham French. This is an unconstrained thematic global equities fund, which invests in a fairly concentrated portfolio of companies. It’s suffered over the last three years from exposure to emerging markets and resources companies which have had a torrid time. In the medium term its fortunes are therefore likely to be intertwined with these parts of the market. Indeed Somel has actually been increasing exposure to mining through positions in BHP Billiton and engineering group Weir, which supplies equipment to the mining industry.”
“Tom Dobell, manager of the M&G Recovery fund, had delivered excellent returns up until the financial crisis but has disappointed for some time now. The brief of the fund is to invest in unloved companies and the approach is inherently long-term, but having underperformed in four of the last five 12-month periods, investor’s patience is being seriously tested. The run of underperformance is particularly disappointing given half the fund is invested in small and mid-cap stocks, parts of the market which have generally performed well in recent years. Stock selection appears to be the problem, most recently with the fund’s exposure to second tier mining companies such as Kenmare and African Minerals, as well as oil explorers such as Gulf Keystone and Tullow. His position in insurance claims processor Quindell will also have added to recent performance volatility, as the business has been under fire from short-sellers, though fought back this week with a bullish trading statement which has seem the shares rally.
“Perhaps the bigger surprise is the first time appearance of the Standard Life UK Smaller Companies fund, run by respected manager Harry Nimmo. It is a fund that has long been popular with advisers, with a focus on quality ‘growth’ companies - indeed we think part of the problem has been the style being out of step with prevailing markets. Smaller companies can add a real kick to a portfolio, but it’s an area where we feel small-sized funds have added flexibility in their ability to fish further down the company spectrum and in terms of trading liquidity. Nimmo fans will be hoping for a recovery in form as investors become more discerning between quality and speculative companies than they have done in recent years.”
Readers offer: Members of the public can get a free copy of the latest edition of Spot the Dog either by downloading it from www.bestinvest.co.uk/dogs or by calling 020 7189 2400 to request a copy.
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