Have your savings gone under? A survey by DIY investment and wealth management group Bestinvest reveals that as much as £53bn of UK investors’ money is tied up in funds that have underperformed the benchmarks they aim to beat for three years running.
These 137 so-called “dog funds” are actively managed, meaning they charge fees to managers who hand-pick investments. But in reality, investors would have been better off not paying managers’ salaries and instead buying a cheap tracking fund with investments selected by algorithms.
Bestinvest’s Jason Hollands says those who find their investments on the dog-list should ask themselves whether they want to stay where they are or go elsewhere.
“For anyone choosing to invest in actively managed funds, finding managers with the right skills to deliver superior returns over the long term is vital to justifying paying the fees to invest in those funds,” he says.
‘As many fund managers fail to achieve this over the long term, the report acts as a guide to encourage investors to monitor their investment performance more closely to assess what, if any, measures are necessary and when.’
Humiliated Great Danes and Disappointing Cockapoos
The good news from the latest edition of the Spot the Dog report, which has been running for more than 30 years, is that the amount of money deposited into dog funds has dropped by 44 percent in the past year.
However, this is largely because several giant funds, including Terry Smith’s Fundsmith and Nick Train’s WS Lindsell Train UK Equity, which were included in the last list, have narrowly escaped inclusion this time around. Ten “Great Dane”-sized funds, with more than £1bn each of investors’ money, remain on the list of shame.
St James’s Place Global Quality Fund, with £10.69bn of investor assets, is the largest on the list.
This fund has turned £100 of investors’ money into just £106 in three years, whereas the same £100 invested in the global benchmark index would be worth £133 today.
Justin Onuekwusi, Investment Director at St James’s Place, said: ‘Our fund performance includes our one-off ongoing charge, which covers the costs of the external fund manager, administration and advice.
“Most of the funds we are compared to in this analysis do not include advisory and administration fees, so this is not a like-for-like comparison. ‘Decoupling’ our fees in 2025 will simplify comparisons with our peers.”
The worst performing fund, Artemis’ Positive Future Fund, did not offer a positive future to investors who bought shares three years ago. In fact, investors have lost money.
The relatively small fund, with just £6.5m under management, underperformed its index by 71 percentage points. Every £100 invested in the fund three years ago would now be worth just £62, whereas that same £100 would be worth £133 today if invested in the global index.
An Artemis spokesperson says the fund has faced a “perfect storm” as it invests in small and medium-sized companies that have struggled in recent years and was launched during the Covid crisis in April 2021.
“The impact of Covid, the rise in energy prices and then the rise in inflation and interest rates had a particularly strong impact on this type of company, which was much more affected by sales on the market,” says the spokesperson.
He added that the fund now has a new manager and team.
Green complaints and global devaluation
The list is dominated by two types of funds: those that invest in global companies and those with a “green” or sustainability focus. Around a quarter are so-called sustainable funds, meaning they may avoid investing in certain sectors of the stock market or actively invest in areas they believe promote positive change.
However, Bestinvest’s report notes that this bias means they may have missed the resurgence of companies holding oil and gas stocks, particularly in the UK. As many as 44 global companies are on the list.
This may seem strange, given the rally in global stocks, especially in the United States. However, Bestinvest experts say that growth in global companies has been highly concentrated.
Funds that invested in certain stocks performed exceptionally well, while those that did not will have lost a lot.
The so-called Magnificent Seven (Apple, Nvidia, Tesla, Alphabet (owner of Google), Meta, Microsoft and Amazon) accounted for a fifth of the value of global stock markets by the middle of this year, thanks to their dizzying growth.
“Fund managers who are not fully exposed to this handful of companies have struggled to keep up,” the report said.
Don’t rely on advisors to make the right decisions
If you have funds listed, it should be a wake-up call, especially if you’re paying for advice, says Bedford-based financial adviser Ian Dempsey.
“If you’re using an advisor who doesn’t do any changes, rebalances or fund changes that are consistently on this list, it’s simple: you need a new advisor,” he says.
‘Too often I see clients who have had very little or no change in years and are therefore having fairly poor performance or high fees with very little explanation as to why or even whether they are on track to achieve their goals.’
Jason Hollands of Bestinvest says the list should not be seen as “just a list of funds to sell”. “Identifying whether a fund has short-term problems that will pass or deeper problems is vital for investors considering removing an investment from their portfolio,” he says.
If you sell funds, you should always check that you have not inadvertently skewed the balance of your entire portfolio towards one sector, region or overall risk level.
Consider your investments as a whole and see if they can still help you achieve your long-term goals.
See the full list of ‘dog wallpapers’ for free at www.bestinvest.co.uk/investment-insights/spot-the-dog
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