Have your savings gone to the dogs? A survey from wealth management and DIY investment group Bestinvest reveals that a whopping £53 billion of British investors’ money is tied up in funds that have underperformed the benchmarks they try to beat for three consecutive years.
These 137 so-called ‘dog funds’ are actively managed, which means that they charge fees for managers who handpick investments. But, in reality investors would have been better off not forking out for managers’ salaries and instead buying a cheap tracker fund with investments picked by algorithms.
Jason Hollands, of Bestinvest, says that those who find their investments on the dog fund list might want to ask themselves if they want to stay put – or go elsewhere.
‘For anyone choosing to invest in actively managed funds, finding managers with the right skills to deliver superior long-term returns is vital to justify paying the fees to be invested in those funds,’ he says.
‘With many fund managers failing to achieve this over the long run, the report acts as a guide to encourage investors to keep a closer watch on how their investments are performing to assess what action, if any, is required and when.’
Shamed Great Danes and underwhelming cockapoos
The good news from the latest edition of the Spot the Dog report, which has been running for over 30 years, is that the amount of money held in dog funds has dropped by 44 per cent in the past year.
However, this is largely because several giant funds, including Terry Smith’s Fundsmith and Nick Train’s WS Lindsell Train UK Equity, which were included in the last list, have narrowly escaped inclusion this time. Ten ‘Great Dane’ sized funds, with over £1 billion each of investor money, still make it onto the list of shame.
St James’s Place Global Quality Fund, holding £10.69 billion of investor assets, is the largest on the list.
This fund has turned £100 of investor money into just £106 over three years, while the same £100 invested in the global benchmark would be worth £133 today.
Justin Onuekwusi, chief investment officer at St James’s Place, says: ‘The performance of our funds includes our single ongoing charge, which covers the costs for the external fund manager, administration, and advice.
‘Most funds that we are compared with in this analysis do not include advice and administration charges therefore it is not a like-for-like comparison. The ‘unbundling’ of our charges in 2025 will simplify comparisons with our peers.’
The worst-performing fund, Artemis’ Positive Future Fund, provided anything but a positive future for investors who bought into it three years ago. In fact, investors have lost money.
The relatively tiny fund, which has just £6.5million of funds under management, underperformed its index by 71 percentage points. Every £100 invested in the fund three years ago would now be worth just £62, while that same £100 would be worth £133 today if invested in the global index.
A spokesman for Artemis says the fund has faced a ‘perfect storm’, as it is invested in small and medium sized companies, which have struggled in recent years, and it launched during the Covid crisis in April 2021.
‘The impact of Covid, rising energy prices and then soaring inflation and interest rates had a particularly strong impact on these kinds of companies, which were hit much harder in market sell-offs,’ the spokesman says.
He adds that the fund now has a new manager and team.
Green gripes and global devaluation
The list is dominated by two types of funds: those that invest in global companies and those with a ‘green’ or sustainability focus. About a quarter are so-called sustainable funds, which mean that they may avoid investing in certain sectors of the stock market or actively invest in areas that they believe promote positive change.
However, the Bestinvest report points out that this bias means they may have missed out on a resurgence from companies that hold oil and gas stocks, particularly in the UK. As many as 44 global companies are on the list.
This may seem strange, given the rebound in global stocks particularly in the US. However, Bestinvest experts say that growth in global companies has been very concentrated.
Funds that invested in certain stocks performed exceptionally well, those that didn’t will have missed out considerably.
The so-called Magnificent Seven companies (Apple, Nvidia, Tesla, Google-owner Alphabet, Meta, Microsoft and Amazon) made up a fifth of the global stock markets’ value by the middle of this year, thanks to their blistering growth.
‘Fund managers not fully exposed to this handful of companies have struggled to keep pace,’ according to the report.
Don’t rely on advisers to make right calls
If you have funds on the list, it should be a wake up call, especially if you are paying for advice, says financial adviser Ian Dempsey from Bedford.
‘If you are using an adviser who is not making changes, rebalancing or switching funds that are consistently on this list, it’s simple, you need a new adviser,’ he says.
‘Far too often I see clients who have had very little to no change in years and therefore have pretty poor performance and or high fees with very little explanation as to why or even if they are on track to achieve their goals.’
Jason Hollands, at Bestinvest says that the list should not be treated as ‘a simple list of funds to sell’. ‘Identifying whether a fund is struggling with short-term challenges that will later pass, or more deep-rooted issues is vital for investors considering whether to remove an investment from their portfolio,’ he says.
If you do sell funds, you should always check that you haven’t inadvertently skewed the balance of your whole portfolio towards one sector, region or the overall level of risk.
View your investments as a whole and check if they are still able to help you achieve your long-term goals.
See full list of ‘dog funds’ for free at www.bestinvest.co.uk/investment-insights/spot-the-dog
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