Or, so it would seem from the latest edition of Tilney Bestinvest’s Spot the dog list of underperforming retail funds.
During 2014 fund managers and other commentators pointed to the fact that both volatility and price dispersions were likely to continue to increase during the year as the Federal Reserve began to slowly dismantle the wall of money built it had been building since the announcement of the first round of quantitative easing.
This indeed has been the case and is, in part, evidenced by the appearance of 60 funds on the list of under performers, up from 49 funds in the July edition of the report that looks for funds that have underperformed its sector in each of the last three years and by 10% or more over the three years.
The level of assets in the funds identified has also risen from £19.6bn in July 2014 to £23bn in this latest report.
As Jason Hollands, Tilney Bestinvest MD explained: “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.
“For unsuspecting investors, rising six monthly valuation statements may have given the superficial impression of a job well done. But the reality is that the fund manager may have seriously lagged the overall movement in the market, detracting rather than adding value while earning lucrative fees.”
But, while in aggregate the number of funds increased, there were also a number of sectoral trends that are worth noting.
The first is the complete absence of funds from the UK Equity Income Sector. This should be encouraging to most investors given that, according to the latest IA statistics: UK Equity Income was the best-selling Investment Association sector for the sixth consecutive month with net retail sales of £466m in November.
The second is the entrance of the European Sector, which now boasts four ‘dog’ funds, two of which are run by Neptune, the other two funds are Aberdeen European Equity and HSBC European Growth.
How the funds in these two sectors fair over the course of the next six months will be particularly interesting to watch as the divergence between them has every likelihood of being rather stark: the UK faces the uncertainty of a general election and the spectre of a possible rate hike toward the end of the year, while the eurozone has just kicked off a significant QE programme, the effectiveness of which remains unknown. Either way, it is safe to say that we might well see a few more funds added to the list over the coming months.
When ranked by level of assets, the unwanted trophy of ‘Top Dog’ remains with M&G, the group said, as a result of the continued problems faced by both the M&G Recovery and M&G Global Basics funds.
“Together these two funds account for 34% of all of the dog fund assets listed and their underperformance is due to both stock selection and sector allocation decisions. In the case of the Recovery fund, which Tilney Bestinvest also rates 1-star the firm believes its problems are exacerbated by fund size. In second place by level of assets is BNY Mellon subsidiary Newton whose two funds included represent 21% of total dog assets.”
