New report reveals £54.6 billion of investors cash tied up in serially poor performing ‘dog’ funds

09 February 2019
 
  • The Spot the Dog report from Bestinvest, the online investment service, will this weekend name and shame the ‘worst of the worst’ investment funds, many of which are widely held in Individual Savings Accounts and pensions
  • Report reveals the amount held in so-called ‘dog’ funds has surged to a massive £54.6 billion, the highest on record
  • Rewards for failure; based on current values, the combined list of dismal achievers is estimated to be earning fund groups a hefty £537 million in annual fees from investors despite repeatedly trailing market returns  
  • Number of ‘dog’ funds has soared to 111, up 91% from 58 six months ago and a four-fold increase from the 26 funds identified this time last year
  • List of offenders includes 14 Great Dane sized funds, each over £1 billion, including for the first time the Woodford Equity Income fund managed by Neil Woodford, one of the UK’s best-known fund managers
  • Fund giant Invesco retains the Top Dog spot for second time with the highest level of assets (£13 billion) and seven funds including its former flagship UK equity funds
  • UK Equity funds have now eclipsed Global funds as the most populated part of the Bestinvest kennel club, with 59 funds worth £35.9 billion identified. It is notable that many of these funds seek to target dividend generating companies
  • On a positive note Japanese dog funds have gone the way of the Dodo, with no funds identified and the number of US equity funds, for years one of the biggest litters, has dwindled to just six

Anyone considering investing in an Individual Savings Account or pension before the tax-year end might want to get a copy of the latest Spot the Dog report by award-winning online investment supermarket Bestinvest, before committing their cash.

This weekend Bestinvest is set to publish the latest edition of its controversial bi-annual report which will ‘name and shame’ investment funds which have consistently delivered poor investment returns for investors.

The report covers retail investment funds such as unit trusts and open-ended investment companies, which are the main stay of many investors’ ISAs and pensions, across a wide range of stock markets from the UK to Japan. To be included in the Spot the Dog report, a fund must have delivered worse returns than the market it invests in for three consecutive years on the trot and by more than 5% over entire three-year period assessed. These twin filters are used to identify consistent poor performers from those that may have had an unfortunate, short-term blip.

Number of dog funds surges 91% in six months….

The latest report has rounded-up 111 investment mutts, which together hold a staggering £54.6 billion of investors’ long-term and retirement savings. This represents a sharp increase on the previous report, published six months ago, which included 58 funds holding £33.6 billion of assets. It is an even more dramatic increase on 12-months ago when only 26 funds worth £6.4 billion found themselves in the spotlight. The current list includes funds managed by some of the most prestigious firms in the City.

Much of the increase in this edition has come from funds that invest in the UK stock market where 59 funds have landed themselves in the kennel of underachievers. These include the £7 billion Invesco High Income fund, one of the most widely held funds by private investors, and the £5 billion Woodford Equity Income fund, a new entrant into the list. The latter is managed by Neil Woodford, the UK’s highest profile fund manager, who has been struggling in recent years with his longest run of underperformance in a career that has spanned three decades.

Income funds struggle

The prevalence of funds that place an emphasis on companies generating dividend pay-outs is noticeable, especially in the UK and Global categories. Bestinvest believes these reflect a broader market trend which has favoured ‘growth’ companies in recent years and a relatively tough period for shares in banks and tobacco companies, both of which are often popular with dividend seeking funds. Funds with global income mandates have been hampered by having less exposure to the US than their benchmark indices; the US market has performed well compared to most other regions in recent years in overall terms but dividend pay-outs are low in comparison.

While many of the funds in the Bestinvest Spot the Dog report are relatively small in size - the median being £173 million - the list nevertheless includes 14 “Great Dane” sized funds, each of which has over £1 billion of investors cash. A table of the 20 largest funds is provided in the appendix.

Jason Hollands, Managing Director at Bestinvest commented: “In each market the difference in return between the best and worst performing funds is huge. These differences in fortunes cannot be explained by variations in fees but come down to the decisions taken by the managers as to which companies to invest in. It is therefore vital for investors to choose their funds very carefully.

“Once invested, it is essential to keep a beady eye on your investments and to check whether or not the funds you hold are adding value for the fees being charged as many simply do not. In practice assessing how your funds are faring has not been as easy as it may sound in recent years. This is because – up until 2018 – investors have enjoyed several years of rising stock markets. In this environment, even those funds that have done a relatively poor job and not kept pace with general rises in markets have mostly still delivered positive returns. This will have undoubtedly left many investors oblivious to the fact they could have done much better elsewhere, while the management companies of these funds have collected lucrative fees for plodding behind.

“However, things have changed recently, with 2018 seeing losses posted across global stock markets. Many investors will now discover that they’ve endured even worse absolute losses delivered by funds they have loyally held, where these have not managed to keep up with, or beat, the markets.

Hollands concluded: “Investors who own a ‘dog’ fund or who are worried about their investments should certainly review them and carefully consider whether to stick with them or potentially switch elsewhere. Funds can come bouncing back from rough patches and action may already be underway to improve performance, such as the appointment of a new manager, so it is vital to do some research before acting. The good news is that if you do decide to switch to a stronger performer, this is quite straight forward to do through online services and there is often little or no cost involved.”

Readers offer: a copy of the latest Spot the Dog report will be available for members of the public to download, free-of-charge, from midnight on Friday 8 February at: www.bestinvest.co.uk/spot-the-dog 

The Twenty Biggest Beasts in Spot the Dog

 

Fund

Size

(£ bn)

Sector

3 year under-perform*

1

Invesco High Income (UK) Z

£7.85

UK All Companies

-19%

2

LF Woodford Equity Income C

£4.98

UK All Companies

-28%

3

Artemis Global Income I

£3.90

Global Equity Inc.

-16%

4

Invesco Income (UK) Z

£3.44

UK All Companies

-19%

5

Threadneedle UK Z

£2.04

UK All Companies

-7%

6

Janus Henderson European Selected Opps I

£1.93

Europe ex UK

-7%

7

St. James’s Place UK High Income L

£1.68

UK Equity Income

-30%

8

HL Multi-Manager Income & Growth A

£1.26

UK Equity Income

-11%

9

M&G Dividend I

£1.15

UK Equity Income

-15%

10

St. James’s Place Global Equity Income L

£1.06

Global Equity Inc.

-9%

11

Jupiter UK Growth I

£1.06

UK All Companies

-28%

12

Threadneedle European Z

£1.05

Europe ex UK

-10%

13

MI Somerset Emerging Markets Dividend Grth A

£1.02

Global Emerging Mkts

-14%

14

Invesco UK Growth (UK) Z

£1.00

UK All Companies

-7%

15

Aviva Investors UK Equity Income 2

£0.92

UK Equity Income

-8%

16

HSBC UK Growth & Income C

£0.89

UK All Companies

-13%

17

St James's Place UK & International Income L

£0.86

Global Equity Inc.

-11%

18

Standard Life European Equity Income P1

£0.84

Europe ex UK

-9%

19

Janus Henderson Global Equity Income I

£0.78

Global Equity Inc.

-10%

20

Schroder UK Alpha Plus Z

£0.76

UK All Companies

-8%

*This is the extent to which the fund has delivered a lower return over the three years to end 2018 than the market in which it invests (after fees).  For actual returns on £100 invested, please see the full report.

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