The number of underperforming funds named in the Tilney Bestinvest Spot the Dog report has spiked by a fifth on last year to 60.
To qualify as a “dog” a fund has to deliver less than its benchmark over three consecutive 12-month periods and undershoot the index by at least 10 per cent over the full three years. The report is released biannually.
M&G Investments had the dubious honour of retaining its “top dog crown” for most assets in bad funds for the second report in a row.
That is due to the mammoth sizes of its two “dog” funds, the £5bn M&G Recovery and £2.6bn M&G Global Basics. They account for 36 per cent of the £23bn held in “dog” funds. Last year just £19.6bn was in poorly performing funds.
An M&G spokesperson says the firm acknowledges some equity funds are “experiencing a difficult period”.
”Markets since the financial crisis have been largely macro-focused and sentiment-driven, which does not favour our stockpicking approach; in addition, many of those funds have endured stock-specific issues.”
The global sector had the most funds in the kennel: 19, or 15 per cent of the universe.
It makes sense that given the MSCI World’s heavy weighting to the US, the North American sector had a similar level of bad funds: 12 or 20 per cent of the sector.
UK Equity Income had no dog funds this year, after last year’s sole mongrel, the £10m Ignis UK Enhanced Income fund was put down.
Eight UK All Companies funds made the dog list, or 5 per cent of the retail market for the sector.
Schroders managed to avoid having any funds in the list this year, after its “overwhelmingly institutionally” owned £3.25bn QEP Global Active Value fund managed to boost its performance above the threshold after years of being in the doghouse.
Tilney Bestinvest managing director Jason Hollands says some investors may not realise the returns they are missing out on because of poor performance.
“In recent years, rising stock markets which have been supercharged by massive central bank stimulus programmes have helped mask the poor relative results delivered by many fund managers whose portfolios have been lifted with the overall tides,” he explains.
“Unsuspecting” investors looking at rising six-month fund updates may think managers are doing a good job when really they may be undershooting the benchmark while earning large fees.
“This is especially the case for funds invested in the US, where the S&P 500 Index has reached a record high but few managers have outperformed and a staggering 20 per cent of funds in the sector have been identified as outright dogs,” he says.