The global funds sector has the largest number of underachieving funds, according to the latest ‘Spot the Dog’ fund list.
Of the 42 investment funds available to retail investors found to be “seriously underachieving”, 15 are from the Global sector, according to the report issued by fund research specialist and execution only online investment platform, Bestinvest. The area with the second highest manager failure rate is North America, with nine ‘dog’ funds, with the two sectors representing more than half of the ‘dog’ fund universe.
Looking at individual companies, ‘dog’ list regular M&G, which made up 60% of ‘dog’ assets in the last edition, has improved its performance to remove itself entirely from the list. Aberdeen remains prominent with four ‘dog’ funds, but is significantly down from a total of 11 from January 2016’s list, Bestinvest said.
The level of assets in the underperforming funds has also fallen to £8.6bn, less than half the number of assets in ‘dog’ funds than six months ago.
20 years of dogs
Bestinvest’s controversial report, which has been running for more than 20 years, “names and shames” investment funds (unit trusts and OEICs) from the Investment Association equity sectors, that have underperformed, meeting the criteria applied by Bestinvest of being available to retail investors and failing to beat their relevant benchmark over three consecutive 12-month periods and also by 5% or more over the full three year period.
The latest edition of Spot the Dog, which uses data up until 31 December 2016, ees a reduction in the three year underperformance threshold from 10% to 5%, as the report now analyses just commission-free share classes which have lower costs than those that were common place in the past.
With 15 funds from the Global equities sector, it remains the area with the largest number of dog funds, as it has been over the past 42 months. However although there are a number of funds included from the sector, a number of them are relatively small funds so only represent 4% of the assets in the sector.
Aberdeen ‘Top Dog’
Bestinvest said that while this edition there is no single fund group that dominates the hall of shame, however when ranked by number of funds in the report, the unwanted trophy of ‘Top Dog’ remains with listed fund giant Aberdeen Asset Management.
The fund house with the largest assets under management within ‘dog’ funds sits with Schroder. This is due to the inclusion of one large fund, its UK Mid 250 fund run by high profile manager Andy Brough. Two well-regarded fund houses that have crept back into the Spot the Dog Guide are Fidelity and Columbia Threadneedle, with Fidelity’s £958m American and £101m Japan funds back “in the kennel”, Bestinvest said.
UK and Europe positives
On a positive note, not a single UK Smaller Companies fund made it into this edition and only one Europe ex UK fund was identified. Across the UK All Companies and UK Equity Income sectors just six funds (representing 1% of the combined assets in the sector) were identified from a universe of 224 funds.
Jason Hollands, managing director, Bestinvest, pictured left, said: “Legendary investor Warren Buffett famously quipped that ‘only when the tide goes out do you discover who’s been swimming naked’. But since the global financial crisis, ultra-low interest rates and Central bank stimulus programmes have helped push share prices much higher, lifting the value of most stock market funds – even laggards.
“This has helped to mask some poor decisions from fund managers,”
“Yet so-called bull markets never last forever. If the financial world enters a tougher phase, as it will at some point, the tide will go out and the decisions fund managers make over which sectors or stocks to own could make a very big difference in returns, including between making a profit or loss for their investors. It is therefore important to be selective about who you entrust your money to.”
Hollands points that 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.
City rock stars
“When all is going well, funds are heavily promoted and managers are feted like City rock stars,” he says. “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 –so investors need to consider their fund managers carefully and keep a beady eye on them.
“With many set to rely on the returns the funds they hold in their 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,” Hollands concluded.
Bestinvest is part of the recently rebranded Tilney Group and provides investment research and is an execution only online investment platform.