Shocking performance again by some well known funds. We name and shame.
February 16, 2022
'Underperforming funds are everywhere’
'The Dogs' are back.
Even if you don’t know it, you are most likely invested in a fund that has made the list of ‘Dog Funds’.
It is that time of year again. Bestinvest have released the latest findings of their ‘Dog Funds’ report which names and shames the worst performing funds in each sector.
The usual names are back including St James’ Place, Invesco, JP Morgan, Halifax, M&G and Fidelity.
Sadly the number of funds failing to keep up with their relevant benchmark index has risen to 86, with assets under management in these funds surging by 54% from £29.6bn to £45.4bn.
What this really tells us is just how good some of these underperforming funds are at marketing.
Capital keeps on being pumped into St James’ Place yet they continually land in the worst 5 overall, every year.
2021 was a great year for equities. Don’t let your fund manager tell you that they performed well with anything under 15%. Even the FTSE 100 returned 14.3% and that was one of the worst. It was several percent behind its European and US counterparts.
The S&P500 increased by a whopping 28.71%. It was easy to make money last year, yet so many funds failed to keep up.
Imagine how badly they’ll do this year with central banks taking money out the system and interest rate rises being a certainty.
In contrast to the ‘Dog Funds’, The Portfolio Platform returned an even more impressive 61% average from our traders. Needless to say, our customers are all incredibly happy with their portfolios.
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What is a ‘Dog Fund’?
Bestinvest apply two filters to identify dog funds. First they filter the fund universe to identify those that have failed to beat the benchmark over three consecutive 12-month periods.
This filter is used to highlight those funds that have consistently underperformed and to strip out those that may simply have had a short run of bad luck.
However, if this was the only filter it would generate a huge list of funds including all index trackers as these are bound to regularly underperform at least slightly due to their charges, which the index does not have.
They therefore apply a second filter: the fund must have underperformed the benchmark by 5% or more over the entire three-year period of analysis.
The number of underperforming “dog” funds in the twice-yearly scorecard has increased to 86 funds, up 9 funds from the 77 reported six months ago.
Based on their current size and ongoing fees, the latest dog list would generate annual fees of £463m. That is how much money is being paid to support underperformance.
Is your money in one of them? Have a look; you might not even be aware just how bad they are.
Jason Hollands, managing director of Bestinvest, said: “£45.4bn is a lot of savings that could be working harder for investors rather than rewarding fund companies with juicy fees".
The report from Bestinvest, which screens 897 UK-based mutual funds with a combined value of £660bn, names “dog” funds that have performed worse than the broader market in which they invest over each of the past three years, and which have underperformed by at least 5 per cent over that period.
Several major fund managers have billions of dollars of their clients’ money in these underperforming funds.
A number of Halifax and Scottish Widows-branded funds managed by Schroders have a combined £8.6bn in flagging strategies, while the UK’s largest wealth manager, St James’s Place, has £5.7bn sitting in funds on the list.
UK managers with the most cash in laggard funds (bn)
St James’s Place £5.74bn
In terms of companies with the most funds on the “dog list”, that distinction is shared between St James’s Place, abrdn and Jupiter, with six funds apiece.
Since the start of the year, things have got even worse for many as markets have suffered a harsh sell-off. This has already hit some well-known stockpickers, which could spell trouble for active managers who enjoyed relatively clear sailing during a benign period of rising markets.
“Rising markets have lifted all ships,” said Jason Hollands, managing director at Bestinvest. “If we move into a more challenging patch for the markets, the difference between the better managers and the also-rans could actually mean the difference between real gains and losses.”
“In recent years, it has been tougher for investors to identify weak funds, with low interest rates and central bank money-printing programmes pushing share prices higher. Most funds investing in equities have generated gains irrespective of the skill of their managers,” he added.
The merits of investing in actively managed funds has been under scrutiny in recent years, given the rising popularity of low-cost passive investment options which simply track the performance of the market.
Stockpickers who aim to deliver superior returns have faced more calls to defend their record and their higher fees. Investment companies such as Vanguard, which have tried to woo investors into their passive strategies, argue that these low-cost options are a better bet for most people.
“Consistently outperforming the market, over the long term, is very difficult,” said Jan-Carl Plagge, head of active-passive portfolio research for Vanguard in Europe.
This just isn’t acceptable.
Lloyds Banking Group, which owns the Halifax and Scottish Widows brands, said the funds shouldn’t be judged solely on recent performance. “We believe the long-term outlook means this investment style is still appropriate for our customers’ investments,” it said.
They can say that, but the funds are judged over a rolling 3 year period so this isn’t hugely relevant.
Schroders said it regularly reviews fund performance to see if “action is required to improve outcomes for our investors”.
We can tell you that it is.
St James’s Place said it had taken steps to improve performance at a number of funds and that its average customer had seen strong returns over the past decade by investing in a combination of funds.
This is a case of ‘if we have enough funds, one of them must make money’. But St James’ Place had a massive number of 6 funds in the 87 underperformers. The most out of anyone. Whatever steps they’re taking, it’s not working.
You are paying for substandard performances but you don’t need to. Just because you got ‘sold’ into one of these IFA’s/Wealth Managers doesn’t mean you have to stick with them.
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