Bestinvest’s bi-annual Spot the Dog report revealed the funds that have continually underachieved for investors.
A fund is considered to be a ‘dog’ when it misses out on meeting the required benchmark over three successive 12-month periods.
The faltering fund must also have underperformed this marker by 5% or more over the complete three-year spell to 30 June 2024 in which the stocks are evaluated.
Every six months, Bestinvest examines UK-domiciled and regulated open-ended investment companies (OEICs), plus unit trusts that invest predominantly in equities.
The round-up also only considers funds open to retail investors, which will generally take into account fund managers dealing with smaller funds rather than the larger institutional investors.
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It was global equity funds that represented the worst performing investments, accounting for 44 holdings worth £26.1bn in wealth. This is marginally better than in the previous name-and-shame list, which saw 51 featured.
Similarly to the last report in March, UK equity funds represented 44 funds on the list, adding up to £11.14bn of investments. This is a slight increase on the 34 funds in the same position last time around.
Overall, the underachieving investments plummeted compared to the 151 funds found in March’s list of poorly performing pooches, which doubled on the previous report to a hefty £95.3bn in wealth.
However, the current state of play with the stagnant investments is well over double the number (56) revealed a year ago.
AI investment funds lead the way
This year, AI funds presented the best chance for a rewarding investment, as their usage surged with a boosted market concentration towards the end of 2023.
Fund managers who missed that boat and had no exposure to AI investments were susceptible to poorly performing assets.
Notable entries on the undesirable list continue to include SJP Global Quality Fund, which was the biggest firm in terms of capital (£10.69bn) to underperform the most. It forms part of the St. James’s Place group, which has three companies holding a total of £12.6bn in dog funds up to 30 June 2024.
In second place of ‘Great Dane’-sized funds were Fidelity Global Special Situations Fund and Fidelity Asia Fund. Those funds have continued to perform badly this year and are worth £3.34bn and £2.71bn respectively. But the total amount of investor cash with Fidelity’s seven funds adds up to £8.4bn.
Further, if you invested £100 into SJP Global Quality Fund three years ago, that would be worth just £106 now – a 27% underperformance, according to Bestinvest.
Across every sector, Artemis was the worst performer. It had a massive 71% difference in what it ought to have been compared to its benchmark, with Baillie Gifford Global Discovery in second place with a 65% deficit.
A surprising duo of investments appeared on the list six months ago in Terry Smith’s Fundsmith Equity and Nick Train’s WS Lindsell Train UK Equity. But both improved to miss out on the list this time.
It was the turn of WS Amati UK Listed Smaller Companies to take the mantle of the shock addition to the list, which previously had solidly performing funds, according to Bestinvest.
Another inclusion that’ll raise eyebrows was Jupiter UK Smaller Companies and Royal London UK Smaller Companies, which were both deemed funds that “should be doing better”.
At the other end of the scale, HBOS and Scottish Widows – now managed by Schroders – dodged an entry on the list after regular appearances.
‘Stellar performance of oil and gas stocks’ leads to more ‘dog’ sustainable funds
Jason Hollands, managing director of Bestinvest by Evelyn Partners, said: “The high number of funds badged variously as sustainable or responsible that feature in the latest Spot the Dog report is likely in part down to the stellar performance of oil and gas stocks in 2021-22. Over the three-year period covered in our latest report, the MSCI World Energy Index delivered a total return in GBP of 98%, well ahead of the MSCI World Index total return of 28%.
“Compare this to the alternative and renewable energy market, which fell out of favour during the post-pandemic surge in energy demand, and the story is very different; the MSCI Global Alternative Energy Index declined by – 38% over the same three-year period, highlighting why managers focused on green energy have had it hard. However, we expect the number of ESG funds to reduce in the next couple of reports as the effect of surging energy stocks drops out of the data.”
Hollands added: “The Bloomberg Magnificent Seven Index, comprised of an equal weighting in these seven US mega caps has surged 42% over the past year, as the frenzy over AI accelerated.
“When you consider the Mag 7 now represents a third of the US S&P 500 Index by market capitalisation and 22% of the MSCI World Index, it helps to explain why global fund managers not fully weighted to this extremely concentrated band of influential stocks struggled to consistently beat the markets.”
As markets can feel extreme directions of change due to everything from poor decision-making to overseas conflict, and Hollands says the list does not mean investors should sell up their shares.
But he believes “it highlights the importance of monitoring a portfolio of investments and asking yourself whether you remain comfortable with your holdings or whether it is time to make some changes.”
He added: “For investors choosing to invest in actively managed funds, finding managers with the right skills to deliver superior long-term returns is vital to justify paying the fees to be invested in those funds.
“With many fund managers failing to achieve this over the long run, the report acts as a guide to encourage investors to keep a closer watch on how their investments are performing to assess what action, if any, is required and when. Funds can stumble for a myriad of different reasons – from poor decision-making or a run of bad luck to instability in the team or because the fund has a style or process no longer favoured by recent market trends.
“Identifying whether a fund is struggling with short-term challenges that will later pass or more deep-rooted issues with long-term consequences is vital for investors considering whether to remove an investment from their portfolio.”
