Aberdeen Asset Management’s well-respected Asia funds have hit the Spot the Dog list of underperforming funds from Tilney Bestinvest.
The list, which identifies funds that have underperformed for three consecutive years and by more than 10 per cent over three years, has picked up Aberdeen’s Asia Pacific Equity and Asia Pacific & Japan Equity funds.
“This will surprise investors, as Aberdeen’s Asian equities team is one of the most highly regarded in the investment industry,” says the report from Tilney Bestinvest. The funds have been hit by conservative positioning in the market, says Tilney Bestinvest, having been underweight to both China and India.
The Aberdeen Asia Pacific & Japan Equity fund delivered a 14 per cent underperformance over three years, while the Aberdeen Asia Pacific Equity fund had a 12 per cent underperformance over the period.
“In line with Aberdeen’s long-term investment philosophy, both funds place higher emphasis than most major peers on quality undervalued companies. This has been undermined by the strong performance of growth stocks over the past few years,” says the report.
“The liquidity-fuelled, indiscriminate rise in stockmarkets around the world over the past couple of years has not been conducive to our fundamental approach to investing focusing on balance sheet strength, the quality of management and the longevity of the business model,” says an Aberdeen spokesperson.
“A good example has been the Chinese stockmarket which has more than doubled over the past year driven upwards by momentum rather fundamentals. More recently we have seen this rally unwind.”
However, M&G took the ‘Top Dog’ spot again having the most assets on the Spot the Dog list for the third report in a row. Its £4.8bn M&G Recovery and £2.5bn M&G Global Basics funds accounting for 41 per cent of all the fund assets on the list.
Broadly, it was positive news for the industry this year, as the number of funds making it to the list reduced to 37 from 60 funds six months ago. Total assets in funds on the list also fell from £23bn six months ago to £17.6bn.
“The decline in the number of funds in this edition of Spot the Dog is clearly positive news but only time will tell if this is a temporary blip or represents a more significant shift in the fortunes of active managers,” says Jason Hollands, managing director at Tilney Bestinvest.
However, the industry trend should be for fewer under-performing funds, says Hollands. ”Arguably the scope for outperformance should improve over time as the industry shifts to lower cost share classes, stripped of commissions and platform fees, feeds through.”
While its Asian funds featured on the list for the first time, Aberdeen actually reduced the number of its funds on the list from nine to eight. However, it remained the fund group with the largest number of funds on the list.
It inherited one of the dog funds in its acquisition of Scottish Widows Investment Partnership. The SWIP UK Opportunities fund, which has been rebranded as the Aberdeen UK Opportunities Equity fund, appeared on the list again. However, it has now been merged into Aberdeen’s existing fund range.
Aside from Aberdeen, St James’s Place and M&G were the only fund houses to have more than one fund on the list, with three and two respectively.
The Global and Global Equity Income sectors had the largest number of worst-performing funds, with 13 funds from the sectors making the list, although this is lower than the 19 seen six months ago.
Despite the drop in overall funds on the list, the gulf in performance between the best and worst performing funds still presents cause for concern, says Hollands.
”Amongst funds in the UK All Companies sector, £100 invested in the worst fund delivered a £9.20 return over three years while the best performer generated a £116.90 return – so it is still vital to be selective,” he adds.