A new report shows a sharp increase in the number of funds lagging their benchmark by 5% or more over the last three years in a row.
The number of funds meeting this criteria has jumped from 59 from 91 products over the past six months, according to the latest ‘Spot the Dog’ report from Bestinvest.
As a result the value of assets held in so-called ‘dog funds' has also increased sharply, from £32.6bn to £43.9bn.
The report estimates that investors are paying approximately £410m of annual costs for these serial underachievers.
While the median fund size is quite small – just £132m – the report identifies 11 ‘Great Danes’ each with over £1bn in investors’ hard-earned cash assets under management.
US AND UK FUND LAGGARDS
North America makes up the biggest number of ‘dog’ funds – 30 out of 91 – as few managers have managed to match let alone beat the stellar performance of US markets and the NASDAQ in particular.
There are 22 UK funds flagged as laggards, accounting for £20.4bn. Of this, just over 40% sits in funds managed by Invesco’s Mark Barnett, including two that were once managed by fallen star Neil Woodford.
Invesco is ‘the most prominent group in the kennel’, taking the Top Dog award for the fourth report on the trot.
As the report says, investors shouldn’t assume that a rise in the value of their investments has been down to great decision-making. Low interest rates following the financial crisis have sent shares soaring which has had the effect of ‘lifting all boats’ or boosting the value of most stock market funds.
As a result many managers have got away with lagging the market and collecting management fees along the way for distinctly mediocre performance.
Of even greater concern, if markets enter a tougher period some of these managers might not just underperform but they could generate serious losses for investors as in the case of the Woodford Equity Income fund – a prominent former member of the ‘dog funds’ list – which is currently being wound up.
WHO’S A GOOD BOY?
As well as bringing ‘dog funds’ to heel, the report gives praise where it’s due and applauds mega-managers Aberdeen Standard, BlackRock, Fidelity and Janus Henderson for all ‘escaping’ the list of the top 10 worst offenders.
At the same time there a special ‘tummy tickle’ for fund companies which have managed to avoid the kennel altogether, which this time round includes Aviva Investors, Baillie Gifford, BMO, Evenlode, First State, Fundsmith, Investec, Lindsell Train, Kames Capital, Legal & General, Royal London and Stewart Investors.