Investors have more money in under-performing funds than ever before, according to Tilney’s latest list of “dog funds”.
The latest edition of the bi-annual list of under-performing funds features the highest number of dogs in its history.
The 111 funds featured hold a combined £54.6bn in assets – the highest number recorded since the list was first issued in 1994.
In the latest list, the UK equities sector saw the most dog funds, overtaking global equities, which had the most under-performers last time round.
The 59 UK equity funds that made the list have a combined £35.9bn in assets between them.
While the majority of dogs on the list are medium-sized funds, 14 with over £1bn made an appearance.
The group with the highest value of dogs is Invesco Perpetual, with seven funds worth £13bn featured, while Woodford Investment Management came in second with just shy of £5bn. The most frequent offender is Janus Henderson, with eight funds in the list – a total £3.8bn.
Star managers Mark Barrett, who manages Invesco’s UK Equity fund, and Woodford’s Neil Woodford, are both shown to have underwhelming performance in recent years.
Woodford made a number of bets on UK businesses and the domestic economy post-Brexit referendum, taking a contrarian approach to most of his peers.
The Spot The Dog report includes funds that fail to beat their benchmark for three consecutive 12-months periods by five per cent or more.
Bestinvest managing director Jason Hollands says: “In each market the difference in return between the best and worst performing funds is huge. These differences in fortunes cannot be explained by variations in fees but come down to the decisions taken by the managers as to which companies to invest in. It is therefore vital for investors to choose their funds very carefully.
“Once invested, it is essential to keep a beady eye on your investments and to check whether or not the funds you hold are adding value for the fees being charged as many simply do not. In practice, assessing how your funds are faring has not been as easy as it may sound in recent years. This is because – up until 2018 – investors have enjoyed several years of rising stock markets.
“In this environment, even those funds that have done a relatively poor job and not kept pace with general rises in markets have mostly still delivered positive returns. This will have undoubtedly left many investors oblivious to the fact they could have done much better elsewhere, while the management companies of these funds have collected lucrative fees for plodding behind.
“However, things have changed recently, with 2018 seeing losses posted across global stock markets. Many investors will now discover that they’ve endured even worse absolute losses delivered by funds they have loyally held, where these have not managed to keep up with, or beat, the markets.”
Hollands adds: “Investors who own a ‘dog’ fund or who are worried about their investments should certainly review them and carefully consider whether to stick with them or potentially switch elsewhere. Funds can come bouncing back from rough patches and action may already be underway to improve performance, such as the appointment of a new manager, so it is vital to do some research before acting.
“The good news is that if you do decide to switch to a stronger performer, this is quite straight forward to do through online services and there is often little or no cost involved.”
The report also lists Bestinvest’s current top-rated funds in each space – it’s “pedigree picks” – which have track records of at least three years. Topping the list is Terry Smith’s £17m Fundsmith Equity fund. Smith recently hit back at Hargreaves Lansdown after he failed to make the platform’s version of top funds, the Wealth 150 list.
The pedigree picks also list the £2.bn TB Evenlode Income, managed by Hugh Yarrow, Nick Train’s £5.6bn LF Lindsell Train UK Equity and Alexander Darwall’s £5.3bn Jupiter European fund.