As expected, Neil Woodford is in the doghouse, but does your Isa contain other serial underperformers? Find out here.
A total of £32.6 billion worth of investor money is tied up in serial underachieving funds, according to Bestinvest’s latest Spot the Dog report.
According to the report 59 of open-ended funds qualify as so-called dog funds – funds that have consistently underperformed.
To be given the dog fund tag, a fund will have underperformed the market it invests in for three 12-month periods in a row and by more than 5% over the entire three-year period assessed.
According to Bestinvest, the two filters identify consistent poor performers rather than funds that may have experienced a short-term upset. Only those funds that invest predominately in equities are analysed, 656 in total.
The fund firms in the doghouse with the highest number of dog funds are: Invesco (six), Aberdeen Standard (five), Canada Life (five), HSBC Investments (four), Fidelity (three) and Janus Henderson (three).
But, a positive is that the overall picture was much worse six months ago. According to Bestinvest’s report in January, there was a total of £54.6 billion invested in 111 dog funds.
The discrepancy is due to the strong showing global markets have delivered in the first half of 2019, more than recouping the losses endured during the final three months of 2018.
As Jason Hollands, managing director of Bestinvest, notes: “Soaring global stockmarkets mean that even laggard investment funds have, in most cases, delivered positive returns over this period.”
But, he warns while still producing a positive return may appear positive “it effectively means that strong overall markets have helped mask the failure of these fund managers to add any value for their ‘expertise’.”
Bestinvest estimates that the dog funds they have identified are raking in a £306 million of lucrative annual fees from investors.
The worst performer, unsurprisingly, was Woodford Equity Income. A £100 investment in the fund three years ago would be worth £80 today. Adding to investor frustration is the fact that the fund is suspended until at least December, meaning they have no way of getting their money out.
The Investment Association global sector houses the highest number of dog funds – with 15 funds holding £4 billion of investor money. But, compared to the last report this is an improvement, as in January there were 20 funds with assets of £9.6 billion classed as dog funds. Only 5 of the 15 global funds are repeat offenders. These are Standard Life Global Equity Income, Janus Henderson Global Equity Income, Threadneedle Global Equity Income, Jupiter Merlin Worldwide Portfolio and UBS Global Enhanced Equity Income.
Hollands, however, warns that the dog funds in report identified are just the tip of the iceberg. He notes: “There are many more funds out there delivering pedestrian returns that didn’t quite make the high threshold for inclusion.
“If you are going to invest in actively managed investment funds, it is vital to be very selective at the outset and then to regularly review your investments to make sure that they are delivering returns that more than justify their fees.”
Fund management firms that avoided having any dog funds were: Aviva Investors, Baillie Gifford, Baring, Crux, Evenlode, First State, Fundsmith, Investec, JO Hambro, Kames Capital, Legal & General, Lindsell Train, Man GLG, Marlborough, River & Mercantile and Royal London.
|Fund||Size (£ bn)||Sector||3 year under-performance*||Value of £100 invested after 3 years|
|1||Invesco High Income (UK) Y||£7.01||UK All Companies||-21%||£102|
|2||LF Woodford Equity Income C||£3.71||UK All Companies||-38%||£80|
|3||Invesco Income (UK) Y||£3.08||UK All Companies||-21%||£103|
|4||Janus Henderson European Selected Opps I||£1.83||Europe Ex. UK||-6%||£134|
|5||BlackRock Continental European Income D||£1.60||Europe Ex. UK||-8%||£132|
|6||St James's Place UK High Income L||£1.28||UK Equity Income||-30%||£90|
|7||HSBC UK Growth & Income C||£0.91||UK All Companies||-8%||£119|
|8||MI Somerset Emerging Markets Div. Grth A||£0.89||Global Emerg. Mkts||-10%||£130|
|9||St James's Place UK & General Progressive L||£0.87||UK All Companies||-9%||£118|
|10||Fidelity American Special Situations W||£0.87||North America||-14%||£135|
You can download the full report here.