Quite how some fund managers keep their well-paid jobs is a mystery. Every six months, BestInvest publishes its list of Dog Funds the worst-performing unit trusts and open-ended investment companies (excluding pension funds, with-profit funds, institutional funds, corporate bond and property funds). Every year for the last few, the same names have popped up in the top ten. Who are they and how can you shake them up?
Making the list shouldn't be easy. To qualify as a dog', a fund has to have missed its benchmark in each of the past three years, and also has to have underperformed by 10% or more cumulatively over that period. That's why it's pretty shocking to find that around £9bn of our money is sitting in funds that make the list. The worst funds have actually lost money even as their benchmark rose. To add insult to injury, last year alone £133m was paid in fees to these consistent underperformers.
While the overall number of dog funds' has fallen this year, thanks to a sharp rally in the stockmarket since last summer (not to mention the exclusion of the last six months of 2008 when stockmarkets froze), 108 still make the BestInvest 10% club.
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Top of the list this time around is Scottish Widows, owned by part-state-owned Lloyds Banking Group. They are the proud handlers of £2.2bn of your hard-earned cash and can boast four consistent underperforming funds. That's enough to move Scottish Widows from position five last time into the gold-medal spot this time.
Joining them on the podium are M&G and Schroders (although, to be fair to these two, this is down to poor performance by just one fund in each case). For a full copy of the report, see Bestinvest.co.uk.
There's no excuse for any of these dogs. Not one underperformer has offered to refund fees or cut their annual management charge. The defence that investors should take a long-term view doesn't wash as BestInvest's Adrian Lowcock puts it: "how long should investors wait for the performance to come back?" Some of these funds are even underperforming the much-derided with-profits funds that have (rightly) attracted so much flak.
So what should you do if you own one of these funds? Simple. Ditch it. You can buy a cheap tracker, and many people are UK investor interest in these, at 6.8% of all fund assets, is now at record levels, says Elaine Moore in the Financial Times. Another good option is to switch into an equivalent investment trust where charges tend to be lower. Among others, we like the Personal Assets Trust (LSE: PNL).
Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.
He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.
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