Named and shamed: investors’ £18bn stagnates in serial underperforming funds
Tilney Bestinvest’s twice yearly Spot the Dog report, which is loathed by fund management firms, names and shames investment funds that have underperformed for three consecutive years and by 10% over three years.
In its last report six months ago, there were 54 serially poor performing funds and £18bn was left languishing in them.
This time around, the data which captures the end of June revealed there were 30 actively managed ‘dog’ funds (unit trusts and OEICs) from a number of Investment Association equity sectors.
Tilney Bestinvest said this decline is largely due to a decision to analyse the lower cost, commission-free versions of funds, meaning many disappointing funds narrowly missed inclusion.
While there are fewer dog funds identified, the level of assets in the funds has remained the same at £18bn.
In the doghouse
According to the report, M&G continues to dominate the leader board by assets under management with £11.7bn of dog assets representing 60% of the total.
The fund house has held this position for the last four consecutive reports from July 2014. Tilney said this is due to the continued woes of its former flagship M&G Recovery (£3.4bn) and M&G Global Basics (£1.8bn) funds, along with new entrant, the massive £5.48bn M&G Global Dividend fund.
Global funds are also revealed as the worst performers with 16 in total representing 15% of the universe.
The area with the second highest manager failure rate remains North America, as it has six dog funds representing 13% of the universe.
The US market is regarded as the graveyard of active fund management, with the average fund in the Investment Association’s North American sector underperforming by 8% over the last three years.
When ranked by number of funds in the report, the unwanted trophy of ‘Top Dog’ remains with listed fund giant Aberdeen Asset Management. It has six of its own funds in the table. Additionally, it is also the underlying manager for a further fund it manages for St. James’s Place and has the only two dogs in the Asia Pacific sector.
Two well regarded fund houses that have crept into the Spot the Dog guide for the first time in recent memory are Invesco Perpetual and Columbia Threadneedle each due to one poorly pooch.
The Invesco Perpetual Global Equity Income fund has seen the company be catapulted into the limelight for the wrong reason. The fund saw a change of manager in 2012 and Tilney Bestinvest said it would seem the new owner is “struggling to bring it to heel”.
Columbia Threadneedle’s Japan fund is the single culprit bringing down the performance of the Japan sector, though its performance suggests it has previously only narrowly escaped inclusion.
The report also revealed that in UK equities, only two funds were in the doghouse and in Europe, only one out of 77 was included.
Japan, Asia Pacific ex Japan and Global Emerging Markets are three other sectors where dog funds are nearing extinction.
It also listed the following which are excluded from the name and shame board: AXA, Artemis, Baillie Gifford, Baring, BlackRock, BMO Global, First State, JO Hambro CM, JP Morgan, Liontrust, Man GLG, Royal London, and Standard Life Investments.
Jason Hollands, managing director at Tilney Bestinvest said: “It’s a simple fact that many funds fail to beat their benchmarks over the long run, after all the fees have been taken – investors need to consider their fund managers carefully. Surprisingly, many continue to put up with weak or pedestrian performance and it’s the fund management companies that benefit.
“This suffering in silence can be a result of investors not reviewing their investments, a lack of ongoing advice and information from the adviser who may have originally recommended the investment or simply inertia and disinterest. Yet, with many set to rely on the returns from ISAs and pensions for future financial security, performance really does matter.”
You can see the full Spot the Dog report here.