According to the twice-yearly Spot the Dog report from broker Tilney Bestinvest, the level of assets in underperforming funds fell from £18bn in July to £8.6bn in the latest report.

Despite this decrease in assets however, the number of serially underperforming actively-managed funds available to UK investors jumped from 30 to 42 in the last six months.

A ‘dog’ is defined as a fund available to retail investors which has underperformed in each of the last three consecutive 12-month periods, and by 5% or more over the three years.

This marks a change in criteria from with the threshold previously being 10% underperformance.

According to Bestinvest this is because the report now analyses only commission-free share classes which have lower costs than those that were common place in the past. It says: “These tough filters ensure the report collars the very ‘worst of the worst’ and that funds which have serially underperformed do not escape as a result of the introduction of lower fee share classes across the industry.”

Sectors in the doghouse

Using data up until 31 December, the latest report identified the Global equities sector as the one housing the most underperforming funds with 15.  As a peer group it has now been the worst performer over the past 42 months. The market with the highest ratio of dogs as a proportion of funds available however  continues to be North America, where nine ‘dog’ funds represent 17% of the sector universe.

Funds in the doghouse

According to the latest guide there is no one single fund group that dominates the list of offenders. However when ranked by number of funds, Aberdeen Asset Management topped the list of shame with four funds. However this marks a significant improvement on one year ago when the group had 11 funds in the self-named ‘dog pound’.

Taking the unwanted honour of being the fund house with with the largest assets under management within dog funds was Schroders, replacing M&G from six months ago. This was because of the inclusion of Andy Brough’s £1.2bn Schroder Mid 250 fund. However given the size and breadth of Schroder’s fund range, Bestinvest noted that only having one fund in the dog list could be regarded as a good achievement.

In response a Schroders spokesperson said: “Our funds are managed for long term performance to assist our clients in meeting their future financial goals. During this time we recognise that there will be periods of short-term underperformance. However our overall investment performance remains very strong and ahead of our target with 69% outperformance over three years.

“It is important to note that over a five year period the Schroder UK Mid Cap 250 fund is up 110.4% and ahead of its benchmark and the sector average which returned 70.1%. Underperformance over the last 12 months was due to a large exposure to domestic stocks, which suffered due to a result of the EU referendum, these are now recovering quickly as earnings and dividends come through as expected.”

Coming back to M&G, only six months ago the fund group had £11.9bn in dog funds, the largest amount from one fund house and a position it had held for four consecutive reports. However relative performance has improved for its three flagship funds – M&G Recovery, M&G Global Basics and M&G Global Dividend – moving them out of the doghouse.

The good news

Not one fund in the UK Smaller Companies sector made into the dog-list, while across the UK All Companies and UK Equity Income sectors just six funds (representing 1% of the combined assets in the sector) were identified from a large universe of 224 funds.

In addition to the improved performance from M&G, other notable absentee fund groups included: AXA, Artemis, Baillie Gifford, Baring, BlackRock, BMO Global, First State, JO Hambro , Kames Capital, Liontrust, Man GLG and Royal London.

Jason Hollands, managing director at Besinvest, said: “Spot the Dog’s message is simple: no matter how thoroughly you research your choices ahead of investing, the fate of funds and their managers can change over time. Many fail to deliver and you need to monitor your investments closely.”