Invesco Perpetual leads the latest edition of the infamous Spot the Dog report, which identifies underperforming equity funds, as the number of dogs hits a record high.
In its bi-annual Spot the Dog report, Bestinvest names and shames funds that have underperformed their benchmarks for three consecutive years and by more than five per cent over three years.
The latest edition features 58 funds with a total of £33.6 billion in assets – the highest number recorded since the first issue in 1994.
The previous report found 26 “dog funds” amounting to £6.4 billion of assets, the lowest level on Bestinvest’s records.
The spike in the number and value of dog funds comes as unpleasant news after January’s record-low results. Bestinvest managing director Jason Hollands says: “We welcomed this turn and hoped this would prove a sustainable trend rather than a mere blip.”
However, Hollands notes that January’s low numbers of underperforming funds reflected market highs.
This allowed weaker funds to show positive results. However, subsequent changes in monetary policy will be less forgiving for dog funds, generating more winners and losers, according to Hollands.
Invesco dog funds make up for 45 per cent of the total £15.1bn run by the manager, thanks to the underperformance of the firm’s flagship High Income and Income funds, worth £9.4 billion and £4.5 billion respectively.
Both giant funds are managed by Mark Barnett, the high-profile fund manager who inherited them when Neil Woodford left Invesco to start his own venture in 2014.
Woodford currently manages the St James’s Place UK High Income fund, which also made the dog funds list.
Barnett, like his predecessor, mainly invests in UK focused companies. This strategy has proved unrewarding since the Brexit vote.
Invesco Perpetual chief investment officer Nick Mustoe says: “We estimate that the valuation across global equity markets of each £1 of revenue sourced in the UK has declined by some three per cent since June 2016 as investors have lost confidence in the prospects for cash generation by companies primarily exposed to the UK economy.”
Despite Barnett’s funds’ recent underwhelming performance, Invesco continues to have confidence that their star manager’s strategy will deliver superior shareholder return in the medium to long term.
An Invesco spokeswoman says: “Truly skilled active managers have the conviction to follow a clearly articulated, proven and repeatable investment philosophy, regardless of market movements. As contrarian investors, periods of stock underperformance – sometimes sustained periods- are part of an active strategy.”
SJP declined to comment on Woodford’s SJP UK High Income fund managment strategy.
Aberdeen and SJP still in the firing line
In this edition of Spot the Dog report, Invesco moved the spotlight away from Aberdeen Standard Investments, which has been a prominent regular on the list since its formation through the merger of Aberdeen Asset Management and Standard Life last year.
Aberdeen, which had as many as 11 funds featured on the list at one point, has five dogs in this edition. The list also features two other funds under Aberdeen’s management, including the St James’s Place Ethical fund, which is set to undergo changes next year – including managerial ones.