Bestinvest has singled out 44 funds for consistently underperforming in its latest ‘Spot the Dog’ report, a hefty increase from 31 in the previous list in August.
The report identifies funds that have lagged their benchmark by at least 5% over three consecutive 12-month periods.
The collective size of the underperforming funds rocketed 78.5% to £19.1bn from £10.7bn five months ago.
However, this pales in comparison to the 150 strategies in the doghouse in August 2020.
Bestinvest said: “Some recognition needs to be given to the fact that 2022 was a very turbulent year. The increase in the number of overall funds listed is a stark reflection of the challenges faced with funds previously flattered by the low interest rate/low inflation environment that followed the financial crisis suddenly becoming very exposed by the inflationary pressures that emerged in 2022.
“It’s very hard to hide when the markets are suddenly contending with runaway inflation that forced central banks to aggressively raise interest rates causing a painful adjustment in the financial markets.”
UK home to the most troublesome mutts
The UK and UK Equity Income universes proved particularly troublesome, with ‘dog fund’ assets rising to £8.4bn from £5.5bn in the IA UK All Companies sector. Bestinvest said this was largely caused by the sectors weightings towards small and mid caps despite a good year for the FTSE 100.
The IA global sector was another pocket dogged by underperformers. While the sector housed 10 poor-performing strategies, up from nine in August, assets in these funds leapt to £4.5bn from £873.4m – mostly due to St James’s Place International Equity and HL Multi-Manager Special Situations Trust’s entering the list. Together, they added £3.9bn to global sector assets in the doghouse.
There were six ‘great danes’ featured in the list – which are funds with assets over £1bn – double the number in the previous report. Added up, they account for 70% of overall assets in the Bestinvest doghouse.
The largest funds were dominated by UK growth strategies, with Halifax UK Growth (£3.2bn) topping the pile, while UK funds run by Invesco and Scottish Widows also made up the report’s ‘biggest beasts’.
Bestinvest Spot the Dog ‘biggest beasts’
|Fund||IA Sector||Size |
|Value of £100 invested after 3 years||3-year performance (%)|
|1||Halifax UK Growth||UK All Companies||3,182||95||-11|
|2||Invesco UK Equity High Income||UK All Companies||2,849||89||-17|
|3||St. James’s Place International Equity||Global||2,166||102||-25|
|4||Scottish Widows UK Growth||UK All Companies||1,800||96||-11|
|5||HL Multi-Manager Special Situations Trust||Global||1,752||105||-22|
|6||Halifax UK Equity Income||UK Equity Income||1,696||98||-8|
|7||Fidelity American||North America||754||107||-27|
|8||Barings Europe Select Trust||European Smaller Companies||699||105||-9|
|9||TM Crux European Special Situations||Europe Excluding UK||532||105||-11|
|10||Abrdn UK Income Unconstrained Equity||UK Equity Income||424||93||-13|
SJP, Schroders, and HL in the doghouse
In terms of fund groups, Bestinvest names Schroders, St James’s Place (SJP) and Hargreaves Lansdown among the main offenders.
Of Schroders, Bestinvest said: “While only three of Schroders’ own-brand funds make the list – UK Multi-Cap Income, European Sustainable Equity and European Alpha Plus, it is responsible for some of the fund industry’s most persistently capricious canines under the Scottish Widows and HBOS brands.
“Schroders completed the transfer of the funds from Scottish Widows in April 2020. While it’s been a choppier period for markets, investors can legitimately ask why the funds show no signs of turning around.”
The funds managed by the firm make up £7.5bn of dog fund assets.
While St James’s Place only had one strategy feature in the report, the SJP International Equity Fund, it accounted for £2.2bn of assets. However, the firm has recently changed the sub-adviser on the strategy, which could improve its fortunes in future.
Back in 2020, SJP criticised Bestinvest’s analysis, saying the report does not make like-for-like comparisons.
On the other hand, no Jupiter strategies were mentioned in the report, having had three funds named last time around. Since then, the firm has undergone an overhaul of its leadership structure, with CEO Matthew Beesley overseeing a range of fund mergers and closures after taking over from Andrew Formica in October.
Meanwhile, Baillie Gifford also escaped the report despite a poor year for growth-style investors.
Overall, the worst performers came from the global sector. Bestinvest noted the sector has the fewest constraints on investment style and geography, which can lead to “some quite niche and specialist approaches which don’t always work out”. The FTF Martin Currie Global Unconstrained fund was highlighted as the largest underperformer, lagging its sector index by 36% over a three year period.
|Fund||IA Sector||Size (£m)||Value of £100 invested after 3-years||3-year under performance (%)|
|1||FTF Martin Currie Global Unconstrained||Global||38||91||-36|
|2||Overstone Global Equity Income||Global Equity Income||28||95||-33|
|3||VT Avastra Global Equity||Global||7||99||-29|
|4||Fidelity American||North America||754||107||-27|
|5||Schroder European Sustainable Equity||Europe Excluding UK||38||89||-27|
|6||St James’s Place International Equity||Global||2,166||102||-25|
|7||Unicorn Outstanding British Companies||UK All Companies||64||84||-23|
|8||Halifax Special Situations||UK All Companies||111||84||-23|
|9||HL Multi-Manager Special Situations Trust||Global||1,752||105||-22|
|10||MI Sterling Select Companies||UK Smaller Companies||26||63||-22|
High flyers falling on hard times
Jason Hollands, managing director of Bestinvest, said: “We have been producing Spot the Dog for more than a quarter of a century, naming and shaming consistently underperforming investment funds to help investors take stock of their portfolio. The aim of the guide is to encourage investors to regularly check how their investments are performing and to assess whether action is required.
“Every fund manager will have moments of weakness during their careers: they may have a run of bad luck, or their style and process may be temporarily out of fashion. It is vital to identify whether these factors are short term or structural, which is why asking some key questions when taking stock of a particular fund in your portfolio is so important.
“Questions to consider include: have there been subtle but important changes in the management team? Has a fund become too big, which might constrain its agility? Is the manager straying from a previously successful approach? Are they now too burdened with additional responsibilities?
“Take note, this edition of Spot the Dog includes several former high-flyers and once popular funds that have subsequently fallen on hard times. The difference between the best and worst performing funds cannot be explained by fees alone and ultimately comes down to the decisions taken. This underlines the need for investors to be super selective when choosing actively managed funds.”