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£22bn languishing in ‘dog funds’

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25/01/2014
The amount of investor money languishing in poorly performing 'dog funds' has risen 68% to £22bn in just six months, with three widely-held M&G funds entering the hall of shame.

The twice-yearly Spot the Dog report from Bestinvest, which is loathed by fund management companies, ‘names and shames’ the worst perfoming investment funds.

The latest edition identified 53 funds, down from the 59 in the last report six months ago.

Bestinvest said that a mixture of soaring stock markets and the unwelcome appearance of three massive and widely held funds from leading manager M&G have seen the level of dog assets grow from £13.3bn in July 2013 to a staggering £22.32bn.

Leading the pack of underperformers when ranked by level of assets is M&G, the group which launched the UK’s first unit trust, with £11.9bn in the kennel.

This is down to three flagship funds entering the tables, which together account for 53% of all dog fund assets; M&G Global Basics, M&G Recovery and M&G American funds.

Tom Dobell’s huge £7bn M&G Recovery fund has proved to be the biggest mutt in M&G’s litter. The fund has had a traumatic 18 months, underperforming its peer group by almost 20% as it was hit by a perfect storm of negative contributions from stock and sector positioning.

Jonathan Willcocks at M&G said: “While these funds have had a challenging last few years they are managed for long term performance, and we ask our clients to take a similarly long term view.

“For example Recovery Fund has returned 15% a year since launch, compared to 10.9% from the All Share index.

“These funds won’t be changing their approach, indeed we think that would be counterproductive, and we are doing our utmost to improve their performance.”

F&C and Scottish Widows Investment Partnership (SWIP) also each have three funds in the dog list; while Fidelity, Aberdeen and HSBC Investments each have two.

Of the UK’s large fund groups, Invesco Perpetual, Threadneedle, Jupiter, Henderson, First State, BlackRock, Artemis and Standard Life currently have no funds on the Spot the Dog list.

Jason Hollands of Bestinvest said: “Our message is simple: no matter how thoroughly you researched your choices ahead of investing, the fate of funds can change over time as the appearance of three previously popular and once strong performing M&G funds illustrates.

“If you are going to invest in funds, particularly those which are actively managed, then it is vital to closely monitor your investments or choose a service that will do this for you.

“All funds and managers go through periods of difficult performance during their careers, so we are not saying investors should automatically switch out of these funds. However, if you hold any dogs, you certainly need to explore further whether you should continue to give it more time to recover or whether it may be better to move elsewhere.

“With the replacement of commission-based advice at the start of last year with fee based advice, many investors have been left in the lurch as some banks have withdrawn from providing advice to all but the very wealthy. Other investors may have voluntarily decided to part-company with their old adviser due to the costs of advice.”

 

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