You don’t have to study our Premier League dregs table for long to notice that a lot of funds underperforming their sector average for each of the past three years are housed in the IMA UK all companies sector.

This one sector accounts for almost a third – 21 – of the 66 qualifying funds scoring 10 or more (where the maximum 12 points indicates fourth-quartile performance for each of the past three years to 1 September – see page 41 of the November issue of Money Observer for a full explanation of the scoring process).

Why this preponderance of chronic underperformers from a single sector – and such an important one for UK investors at that? In part it’s a numbers game – a reflection of the sheer size of the sector, home to 269 funds, and the fact that it alone accounts for over a tenth of the 2,500 strong fund universe.

‘Generally speaking, I would expect a large sector such as UK all companies, where nearly every investment house has a fund, to have a greater number of consistently poor-performing funds,’ comments James Davies, portfolio manager at Close Brothers Asset Management. 

‘Essentially, in more specialised sectors like Asia, Japan and emerging markets, you tend to get a more focused approach to investing. While a fund in those sectors might have a bad year, it is more likely to be because the manager is taking a contrarian position or there has been a material change in the way it is run.’

Sure enough, further scrutiny of the dregs table reveals that only one Japan fund (Threadneedle Japan) is listed there, out of a 55-strong sector, and that only Scottish Widows Emerging Markets from the 50-fund global emerging markets sector has shown consistent underperformance over the three-year period.

But the UK all companies’ dominance in the dregs table also flags up the fact that the sector houses a fair number of large, long-established and essentially mediocre closet index-trackers that keep going as they are because investors are not proactive enough to vote with their feet.

Big insurance houses are thick on the ground, with Prudential, Scottish Widows, Canada Life, the Cooperative, Legal & General and Standard Life all represented among the UK all companies sector under-achievers. Their tied distribution networks help ensure sales figures remain perky, even when performance slumps.

‘There will also no doubt be some funds in that sector that the fund management groups simply aren’t focused on, and that are just being left so long as they make money,’ adds Ben Seager-Scott, investment analyst at broker BestInvest.

But while these funds are no doubt making money for their management groups, they’re certainly not doing so for their unfortunate investors. Over three years, the two qualifying funds with the maximum 12-point score, BlackRock UK Dynamic and CIS Sustainable Leaders, were both down more than 10 per cent, underperforming the FTSE All-Share Total Return index by 27 percentage points. Indeed, of the 21 underperformers in the all companies sector, only one – L&G UK Growth Trust – actually broke even, pulling off a meagre 0.58 per cent return.

‘Interestingly, these underperformers are probably the funds most susceptible to competition from passive funds such as ETFs and index trackers, and you could argue these are the sort of funds that drag the average active fund manager stats down,’ observes Seager-Scott. He points out that according to Lipper data, over the last three years to the end of September the IMA all companies sector average return is 6.4 per cent, underperforming the FTSE All-Share’s 8.4 per cent return.

All of which flags up once again the glaringly obvious fact that investors need to take ownership of their investments. If they don’t monitor regularly and move in the face of consistently rubbish performance, they have only themselves to blame.

Check if your money is languishing in our 300 fund failures here.