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Woodford and Invesco named in worst performing funds list

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11/02/2019
ISA and pension investors in the UK have record amounts of cash tied up in consistently underperforming ‘dog’ funds, a damning report has revealed.

Research by online investment service Bestinvest looked at the performance of funds across a range of stock markets from the UK to Japan.

It found the amount held in serial poor performers has surged to a massive £54.6bn, a sharp increase from the £33.6bn reported in the last report published six months ago.

The number of underachieving funds also jumped from 58 to 111 over the same period.

Worryingly, some of the most popular names in the fund world are among the worst offenders. They include the £4.9bn Woodford Equity Income fund, run by Neil Woodford, one of the UK’s best-known fund managers, and the £7bn Invesco High Income fund, one of the most widely held funds by private investors.

According to Bestinvest, these so-called ‘dog’ funds are estimated to be earning fund groups £537m a year in fees.

A spokesperson from Woodford Investment Management said: “Throughout his career, there have been times when Neil’s funds have underperformed the broader market because of a contrarian view – and this has been one of those times. He has also managed portfolios of a similar flavour and structure at various stages over the past 30 years.

“Neil believes there are risks in stocks whose share prices and valuations have risen on an increasingly false premise, stocks he has avoided. Instead, he is invested in companies with greater potential for upside whose share prices have been weak (in many cases very weak), predicated on a view, which he doesn’t share, that the UK economy is about to go into recession.”

Funds with a focus on generating income for clients featured heavily in the list of poor performers. Bestinvest said this reflected a broader market trend which has favoured ‘growth’ companies in recent years and a relatively tough period for shares in banks and tobacco companies, both of which are popular with dividend-seeking funds.

Jason Hollands, managing director at Bestinvest, said: “In each market the difference in return between the best and worst performing funds is huge. These differences in fortunes cannot be explained by variations in fees but come down to the decisions taken by the managers as to which companies to invest in. It is therefore vital for investors to choose their funds very carefully.”

What is a ‘dog’ fund?

To qualify as a ‘dog’, a fund must have delivered worse returns than the market it invests in for three consecutive years and by more than 5% over an entire three-year period. Bestinvest said these filters are used to identify consistent poor performers from those that may have had an unfortunate, short-term blip.

I own a ‘dog’ fund. What should I do?

Investors who are worried about their investments should review them and carefully consider whether to stick with them or potentially switch elsewhere, Hollands explained.

“Funds can come bouncing back from rough patches and action may already be underway to improve performance, such as the appointment of a new manager, so it is vital to do some research before acting,” he said.

“The good news is that if you do decide to switch to a stronger performer, this is quite straight forward to do through online services and there is often little or no cost involved.”

The 20 biggest ‘Dog’ funds

Fund Size

(£ bn)

Sector 3 year under-performance*
1 Invesco High Income (UK) Z £7.85 UK All Companies -19%
2 LF Woodford Equity Income C £4.98 UK All Companies -28%
3 Artemis Global Income I £3.90 Global Equity Inc. -16%
4 Invesco Income (UK) Z £3.44 UK All Companies -19%
5 Threadneedle UK Z £2.04 UK All Companies -7%
6 Janus Henderson European Selected Opps I £1.93 Europe ex UK -7%
7 St. James’s Place UK High Income L £1.68 UK Equity Income -30%
8 HL Multi-Manager Income & Growth A £1.26 UK Equity Income -11%
9 M&G Dividend I £1.15 UK Equity Income -15%
10 St. James’s Place Global Equity Income L £1.06 Global Equity Inc. -9%
11 Jupiter UK Growth I £1.06 UK All Companies -28%
12 Threadneedle European Z £1.05 Europe ex UK -10%
13 MI Somerset Emerging Markets Dividend Grth A £1.02 Global Emerging Markets -14%
14 Invesco UK Growth (UK) Z £1.00 UK All Companies -7%
15 Aviva Investors UK Equity Income 2 £0.92 UK Equity Income -8%
16 HSBC UK Growth & Income C £0.89 UK All Companies -13%
17 St James’s Place UK & International Income L £0.86 Global Equity Inc. -11%
18 Standard Life European Equity Income P1 £0.84 Europe ex UK -9%
19 Janus Henderson Global Equity Income I £0.78 Global Equity Income -10%
20 Schroder UK Alpha Plus Z £0.76 UK All Companies -8%

 

You can download a full copy of the report here.

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