£45bn of investor cash held in underperforming funds
The name and shame list revealed that assets held in these underperforming funds has risen from £29.6bn to £45.4bn in just six months.
Further, 86 funds now make the league, up from the 77 identified in September 2021.
As part of the bi-annual ‘Spot the Dog’ report from Bestinvest, ‘dog’ funds are those which fail to beat their relevant benchmark over three consecutive 12-month periods and also by 5% or more over the full three-year period. It covers unit trusts and OEICs from a number of Investment Association equity sectors.
This time round, many of the culprits were found in the Global and Global Equity Income sectors. Here, St James’s place added £4.3bn to the tally, while M&G added £2.27bn.
St James’s Place was also one of three companies which had the greatest number of funds (six) on the list, sharing the shameful tally with Abrdn and Jupiter.
In total, there were 12 funds with over £1bn in assets making the list, including JP Morgan’s US Equity Income fund (£3.92bn), Halifax UK Growth (£3.79bn) and BNY Mellon Global Income fund (£3.47bn).
But Bestinvest noted that the North America sector has seen the number of funds decrease due to the sharp outperformance of the technology sector in recent months.
Smaller companies and Emerging Market funds were also notably missing from the ‘dog’ fund league, “suggesting fund managers do a better job in less researched parts of the market”. However, again, St James’s place was the only emerging market fund to be included.
Is your money in a ‘dog’ fund?
HBOS/Schroders/Scottish Widows: Schroders manages Scottish Widows’ funds, with £2.55bn spread across four poor performing funds, as well as HBOS funds since a deal was struck in 2018. Bestinvest said these remain some of the most persistent offenders and the group has struggled to turn round performance on the £3.79bn UK Growth and £1.92bn UK Equity Income funds. “Their poor performance has persisted through a range of market conditions”, it noted.
St James’s Place: Bestinvest said the UK wealth manager has its own fund range which is then ‘parcelled’ out to external managers. Its unique selling point is that it can pick top managers from across the market, hand them separate mandates and then monitor them closely. “But it’s all gone a little paw-shaped in recent years, including investing with the ill-fated Woodford Investment Management.” It takes second place with £5.74bn in underperforming funds.
Invesco: It has four ‘dog’ funds, down from 11 worth £9.2bn at the start of 2021 which Bestinvest credits to its shake-up of the investment team. It’s in third place with £4.34bn in poor performing funds. The UK Equity Income Fund was managed by Neil Woodford until 2013, then Mark Barnett until 2019 and is now under new management. Bestinvest said: “They have struggled to turn around performance. The environment in 2021 should have been better for the funds’ style and the management has had plenty of time to effect a change in fortunes.”
JP Morgan: It has just the one fund, but it’s a fund giant with £3.92bn in assets – the US Equity Income fund which faces a “tough comparison” as it’s benchmark is the MSCI USA Index which has a near 30% weighting in technology. “Technology companies don’t tend to pay an income and have continued to do well in 2021. As such, the fund has a natural disadvantage”, Bestinvest noted.
Fidelity: It has three funds on the list, with its American fund remaining 23% behind the benchmark over three years. The £2.37bn Global Dividend fund has also struggled, according to Bestinvest. “The manager Daniel Roberts has historically shown some skill as a stockpicker, but it has been a tough climate for equity income managers and he hasn’t delivered for investors in recent years”.
Jason Hollands, managing director of Bestinvest, said: “£45.4bn is a lot of savings that could be working harder for investors rather than rewarding fund companies with juicy fees. At a time when investors are already battling inflation, tax rises and jumpy stock markets it is vital to make sure you are getting the best you can out of your wealth. While turbulence has increased recently, that’s no excuse for consistently failing to match benchmark returns, sometimes by drastic margins.”
See the full Spot the Dog report here.
What should you do with your money now?
While investors may be nervous if their money is held in a fund making the list, Bestinvest stresses it’s not a ‘sell’ list. Spot the Dog is based on factual analysis of past performance which shouldn’t be used as a guide for how the fund will perform in the future.
Some investing styles may be out of step with current markets; some managers may be better suited to tougher times while other are better in rising markets.
Highlighted funds may already be seeing change, such as a new manager. Overall, the report shows which funds need further investigation.