The sum of money held in serial underperformers has mushroomed from £33.6 billion to £54.6 billion.
The number of poor performing ‘dog’ funds has risen from 58 to 111, according to Tilney Bestinvest's latest Spot the Dog report. As a result, the amount of money held in the serial underperformers has surged from £33.6 billion to £54.6 billion.
Bestinvest’s Spot the Dog report, which has been running for more than three decades, defines an investment fund “dog” as a fund that has underperformed for three years in a row and by more than 5% over three years. The amount of money held by investors in ‘dog’ funds is the highest on record.
UK funds in the doghouse
UK funds were among the worst offenders. Among the Investment Association’s (IA) UK All Companies sector, a total of 18% of funds, representing 28% of money in the sector, were on the dogs list.
Jupiter UK Growth and Woodford Equity Income topped the list, with both producing three-year relative performance (against its benchmark) of -28%. Jupiter UK Growth is managed by Steve Davies, while Woodford Equity Income is managed by feted fund manager Neil Woodford, who is aiming to prove the doubters wrong following his spell of poor performance.
Since the Brexit referendum in 2016, the star fund manager has had a bet big on the UK economy, favouring UK domestic focused companies. The financial sector and housebuilders have taken a prominent role in his portfolio. This, Tilney Bestinvest notes, has “unfortunately backfired”.
Another fund Woodford manages, St. James’s Place UK High Income, also found itself topping the dogs list for the IA UK Equity Income sector, returning investors £840 on a £1,000 investment three year. The fund, the report notes, is repeatedly in the doghouse. The second and third worst offenders were Smith & Williamson UK Equity Income and Castlefield B.E.S.T. Sustainable Income, which had both also lost investors money over the past three years. In total, over a third of UK equity income funds (35%), found themselves on the dogs list.
UK Smaller Companies funds fared much better. In total just two funds, representing 4% of all funds found themselves on the dogs list: Majedie UK Smaller Companies and Janus Henderson UK & Irish Smaller Companies.
Europe funds: five in 10 given the ‘dog’ tag
When it came to Europe, the performance was slightly better. A total of 18 funds, representing 21% of the universe were classed as dogs. However, that represents a notable increase from the previous report, which saw the inclusion of just five funds.
The poor performance was partly driven by the unfavourable political and economic climate. As the report notes: “This political unrest and waning economic growth has spilled over into volatility in the European markets, and 2018 was the region’s worst calendar year since 2011.”
The worst performance came from FP Argonaut European Alpha, which had a relative three year return of -26%. That was followed by Barclays Europe (ex-UK) Alpha, with a relative return of -22% and Invesco European Opportunities, with -16%.
Emerging market and Asia funds hold up well
Conditions were tough too in emerging markets, with the summer’s currency crisis combined with China’s slowdown taking a toll. However, in total just five funds, out of a possible 37, were classified as dogs.
Top of the list was Threadneedle Global Emerging Markets Equity, with a three-year relative performance of -15%, followed by MI Somerset Emerging Markets Dividend Growth with -14%. When it comes to the latter, the report notes that one of the biggest drags on performance was its allocation to Turkish companies, which were negatively impacted by a currency crisis last year.
When it came to the Asia Pacific region, performance has also been relatively strong, with just three out of 40 funds finding themselves on the dogs list, despite the region ending the year 8.6% down. The worst performer was Jupiter Asian, with a relative 3-year return of -15% followed by Allianz Total Return Asian Equity, with -11%.
North America funds: best in show
There is widespread recognition the US market is too efficient to beat. The scale and extensiveness of research on companies in the market makes trying to identify profitable opportunities almost impossible. For this reason, the North America sector over recent years has often had a long list of dogs.
However, as the report notes, there has been a “sharp decline in the number of dog funds over the last few editions of this guide.” The number of underperforming funds on the dogs list was comparably small at just 6 out of 60, representing 4% of total assets under management in the sector.
Standard Life American Equity Unconstrained was the worst offender, with a three-year relative performance of -17%., followed by Royal London US Growth -14% and Franklin US Opportunities -11%.
Best and worst companies
The report also names and shames the fund management companies that contributed the most to dogs list, ranking them by total amounts of client money currently in dog funds. Invesco topped the list, with a total of £13 billion in seven underperforming funds.
Next was Woodford Investment Management, with its £4.9 billion Woodford Equity Income. Also included in the top 10 were Artemis, Columbia Threadneedle, Janus Henderson, Jupiter and Schroders.
Fund management companies that managed to avoid having any of their funds appear on the dogs list were: Baillie Gifford, Baring, Evenlode, First State, Fundsmith, Investec, JO Hambro, Lazard, Lindsell Train, Man GLG, Marlborough, River & Mercantile and Stewart Investors.