Which dogs are in the kennel? Latest Spot the Dog report

30 July 2016
 
  • £18 billion in seriously underachieving investment funds
  • 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
  • M&G continues to dominate the dog-house by assets under management with £11.9 bn of dog assets representing 66% of the total. This is dominated by Global Basics and Recovery funds which are long-term inmates plus a new joiner in the Global Dividend fund
  • Fund giant Aberdeen remains prominent with 6 dog funds, but down from 11 in the last issue
  • The area with the largest number of dog funds remains Global with 16 funds representing 15% of the universe
  • The area with the second highest manager failure rate remains North America, as it has 6 dog funds representing 13% of the universe
  • James’s Place, Invesco Perpetual and Columbia Threadneedle each have Great Danes in the kennel
  • Readers offer: Spot the Dog can be downloaded for free at bestinvest.co.uk/dogs or by calling 020 7189 9999 to request a hard copy 

Leading UK investment group Tilney Bestinvest has published the latest instalment of its controversial twice-yearly Spot the Dog report, which for two decades has “named and shamed” consistently poor performing investment funds. Investors looking to tuck money into a stock market fund might be wise to get hold of a copy before potentially having their returns chewed up by these mutts.

The latest edition of Spot the Dog, which uses data up until 30 June 2016, has identified 30 ‘dog’ funds (unit trusts and OEICs) from a number of Investment Association equity sectors. This number is down from 54 six months ago, however the decline is largely due to a decision to analyse the lower cost, commission-free versions of funds from this report onwards as it is now three years since the introduction of new rules removing commission as a means of paying for financial advice prompting the introduction of ‘clean’ share classes. This has meant that many disappointing funds narrowly missed inclusion because of the lower fees slightly improving returns. Although there are fewer dog funds identified in this edition, the level of assets in the funds has remained the same at £18bn. Each of the funds in the report met the strict criteria applied by Tilney Bestinvest of being available to retail investors and failing to beat their benchmark over three consecutive 12-month periods and by 10% or more over three years. These tough filters ensure the report collars the very “worst of the worst”.

The Pit Bull’s in the Pound: Global and North American funds

With 16 funds representing 15% of the universe Global equities remains the area with the largest number of dog funds, as it has been over the past 36 months. North America is another perenial weak spot, with 6 dog funds in the kennel representing 13% of the universe. The US market is regarded as the graveyard of active fund management, with the average fund in the IA North American sector underperforming by 8% over the last three years.

M&G and Aberdeen: St Bernard’s of the industry
The fund house with the largest assets under management within dog funds remains Prudential-owned M&G with £11.9 billion and 66% of the total dog fund assets. The fund house has held this position for the last four consecutive reports from July 2014. This is due to the continued woes of its former flagship M&G Recovery (£3.4 billion) and M&G Global Basics (£1.8 billion) funds, along with new entrant, the massive £5.48 billion M&G Global Dividend fund.

When ranked by number of funds in the report, the unwanted trophy of ‘Top Dog’ remains with listed fund giant Aberdeen Asset Management which has been battling massive outflows.  Aberdeen has 6 of its own funds in the table. Additionally, it is also the underlying manager for a further fund it managed for St. James’s Place and has the only two dogs in the Asia Pacific sector. An interesting development is that St. James’s Place Capital announced last week, 27 July, that they’ve fired Aberdeen as manager of its SJP Far East fund which appears in the report, replacing Aberdeen with rivals First State. So they’ve decided to call the vets in on this one themselves! However in the last edition, Aberdeen had 11 dog funds, so it has almost halved the number of funds. Let’s hope the improving trend can be sustained.

Two well regarded fund houses that have crept into the Spot the Dog Guide for the first time in recent memory are Invesco Perpetual and Columbia Threadneedle each due to one poorly pooch. The Invesco Perpetual Global Equity Income fund has seen the company be catapulted onto the podium of fund Crufts. The fund saw a change of manager in 2012 and it would seem the new owner is struggling to bring it to heel. Meanwhile Columbia Threadneedle’s Japan fund is the single culprit chewing up the furniture of the Japan sector, though its performance suggests it has previously only narrowly escaped inclusion.

Not all Bad News…

There are a few sectors where dog funds are a rare breed. In UK Equities only two funds out of a huge universe were dog collared, and in Europe we rounded up just one mutt out of 77 funds. Japan, Asia Pacific ex Japan and Global Emerging Markets are three other sectors where dog funds are nearing extinction.

While many groups will from time to time have an unruly pup in their fund range, notable absentees amongst fund groups include: AXA, Artemis, Baillie Gifford, Baring, BlackRock, BMO Global, First State, JO Hambro CM, JP Morgan, Liontrust, Man GLG, Royal London, and Standard Life Investments.

Jason Hollands, Managing Director at Tilney Bestinvest commented:

“Warren Buffet famously quipped that ‘only when the tide goes out do you discover who’s been swimming naked’. After several years of strongly rising markets, which lifted the value of most stock market funds and helped to mask some poor decisions from managers, the market environment has become much tougher: over the last year concerns about the Chinese economy have seen turbulence in Asia, commodities have had a rollercoaster ride and scepticism has grown towards Central Bank policies. Additionally, in the months leading up to the UK’s European Referendum there was an added volatility in the UK and European markets and a reversal in the fortunes of mid-sized UK companies in favour of larger ones. In a more volatile environment, the decisions a manager makes over sectors or stocks can make a very big difference in returns and it’s important to be selective about who you entrust your money to.

“While fund management companies like to push their star managers and the funds that happen to be doing well at the time, the reality is many of them will have skeletons in the closet that don’t get mentioned in advertising campaigns. The financial services industry has an unfortunate habit of overpromising and under-delivering. When all is going well, funds are heavily promoted and managers are feted like City rock stars. Yet some of these stars may have simply got lucky and turnout to be shooting stars that crash out of orbit. It’s a simple fact that many funds fail to beat their benchmarks over the long run, after all the fees have been taken – investors need to consider their fund managers carefully. Surprisingly, many continue to put up with weak or pedestrian performance and it’s the fund management companies that benefit. This suffering in silence can be a result of investors not reviewing their investments, a lack of ongoing advice and information from the adviser who may have originally recommended the investment or simply inertia and disinterest. Yet, with many set to rely on the returns from ISAs and pensions for future financial security, performance really does matter.

“Spot the Dog’s message is simple: no matter how thoroughly you research your choices ahead of investing, the fate of funds and their managers can change over time. Many fail to deliver and you need to monitor your investments closely.” 

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.

For a case study of an investor who has switched out of a ‘dog’ fund please contact Matthew.Gray@tilneybestinvest.co.uk

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Spot the Dog is on Twitter! Follow him @Spot_theDog

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 firm that builds on a heritage of more than 150 years. The Tilney Group operates under the Tilney brand for Investment Management and Financial Planning and Bestinvest for execution-only investing. We look after more than £22 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.

We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.

We have won numerous awards including Best Fund Platform and Best SIPP Provider at the 2017 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. We are pleased that our greatest source of new business is personal referrals from existing clients.

Headquartered in Mayfair, London, Tilney Group employs over 1,000 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.