Investing in funds is a straightforward way to build a diversified portfolio, but the performance can vary significantly. Economic factors, like persistently high inflation, rising interest rates and the ongoing war in Ukraine have all led to turbulence in financial markets, potentially denting the returns enjoyed from certain funds.
However, some funds have performed particularly poorly, earning them the moniker of ‘dog funds’. So which funds are in the doghouse, and should this mean you ditch them as soon as possible?
Twice a year BestInvest publishes a ‘Spot the Dog’ report, pinpointing the worst ‘dog funds’. According to its latest study there are now a whopping 56 dog funds, up from 44 in the last report. Between them these funds hold £46.2bn in investors’ cash, more than double the £19.1bn recorded in the last edition in February.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
BestInvest’s report looks at funds that consistently underperformed relative to their relevant market index. And while funds are not put into the dog house just because markets are going through a rough patch, “it has helped shine a spotlight on those investment funds consistently delivering poor returns,” according to the firm.
What makes a dog fund?
For a fund to qualify as a dog, it must have failed to beat the benchmark over three consecutive 12-month periods by 5% or more over the entire three-year period.
The Global sector was picked out as the worst-performer when it comes to underperforming funds, with BestInvest suggesting that many investment managers had been “wrong-footed” by turbulence in the sector in recent years.
In total, 56 dog funds were pinpointed by the report, with the increase in ‘big beasts’ ‒ those funds with more than £1bn in assets under management ‒ moving from six to nine.
The fund management market has become increasingly competitive in recent years, noted Jason Hollands, managing director of BestInvest, with fund managers needing to perform well just to be average.
“For investors choosing to invest in actively managed funds, finding managers with the skill to deliver superior returns is vital if they are to justify paying the fees to be invested in those funds,” he added.
Do you hold a dog fund? Here are the underperforming funds you may want to sell now.
Top underperforming funds
BestInvest looks at UK domiciled open-ended investment companies and unit trusts investing mainly in equities that have share classes open to retail investors. It ranks their performance by comparing them to a benchmark index representing the market the fund operates in.
These are the top ten worst performing funds overall:
| Fund | IA Sector | Size (£bn) | Value of £100 invested after 3-years | 3-year under performance (%) | |
|---|---|---|---|---|---|
| 1 | Baillie Gifford Global Discovery | Global | 0.78 | 61 | -70 |
| 2 | SVS Aubrey Global Conviction | Global | 0.04 | 74 | -64 |
| 3 | Premier Miton US Smaller Companies | North American Smaller Companies | 0.06 | 95 | -47 |
| 4 | AXA ACT People & Planet Equity | Global | 0.01 | 92 | -45 |
| 5 | JP Morgan US Small Cap Growth | North American Smaller Companies | 0.20 | 100 | -42 |
| 6 | Unicorn Outstanding British Companies | UK All Companies | 0.06 | 97 | -36 |
| 7 | St. James’s Place International Equity | Global | 7.09 | 101 | -36 |
| 8 | EF Rosevine Capital Global Equity | Global | 0.01 | 103 | -35 |
| 9 | AXA Framlington UK Sustainable Equity | UK All Companies | 0.07 | 103 | -30 |
| 10 | Troy Asset Management Trojan Income | UK All Companies | 1.00 | 105 | -29 |
The largest underperforming funds
One concern in the latest report is the growing number of large funds which have slipped down to dog status.
That’s a notable increase on the six from last time around, and a useful reminder to investors that just because a lot of other investors have chosen to back a particular fund, that’s no guarantee that they will perform to an adequate standard.
Here are the 10 biggest ‘dog funds’:
| Fund | IA Sector | Size (£bn) | Value of £100 invested after 3 years | 3-year under performance (%) | |
|---|---|---|---|---|---|
| 1 | St. James’s Place Global Quality | Global | 11.47 | 114 | -24 |
| 2 | St. James’s Place Global Growth | Global | 7.49 | 109 | -28 |
| 3 | St. James’s Place International Equity | Global | 7.09 | 101 | -36 |
| 4 | St. James’s Place Growth European Progress | Europe Excluding UK | 1.85 | 113 | -17 |
| 5 | Scottish Widows UK Growth | UK All Companies | 1.82 | 120 | -14 |
| 6 | Artemis US Select | North America | 1.53 | 125 | -17 |
| 7 | Columbia Threadneedle Responsible Global Equity | Global | 1.41 | 120 | -17 |
| 8 | abrdn UK Smaller Companies | UK Smaller Companies | 1.11 | 90 | -18 |
| 9 | Troy Asset Management Trojan Income | UK All Companies | 1.00 | 105 | -29 |
| 10 | St. James’s Global Emerging Market | Global Emerging Markets | 0.87 | 85 | -20 |
Underperforming fund groups
A handful of fund groups were placed in the ‘doghouse’ in account of the number of dog funds to their name.
St James’s Place for example has six dog funds, double the number of any rival, though BestInvest cautioned that it’s the size of those funds that is really the most concerning aspect. A massive £29.3bn is held across those six funds, accounting for almost two-thirds of the total dog fund assets in the report.
Artemis was also in the doghouse, on account of its two US funds as well as its Global Select fund. The problems with the US funds are supposedly “idiosyncratic and down to a few difficult stock decisions”.
Columbia Threadneedle has four funds on the list, worth £1.9bn. The four funds were all inherited from BMO Global Asset Management when Columbia Threadneedle took over its EMEA business a couple of years ago.
Abrdn was also named, with two funds on the list, down from three last time. However, one is a “big old St. Bernard”, the £1.11bn abrdn UK Smaller Companies fund which saw the department of long-standing manager Harry Nimmo at the end of last year.
Should you ditch underperforming funds?
Past performance should not be an indicator of future returns, and everyone might have individual reasons as to why they choose to stick with certain funds such as investment styles or sectors.
Other funds might be working on their underperformance and communicating with their investors. So BestInvest stresses this isn’t a sell list – but it might be worth looking into funds that make repeat appearances.
-
Bitcoin price one of the most-asked questions on Alexa - here's how to buy the cryptocurrencyAccording to figures from Amazon, which cover September 2023 to November 2024, pop star Taylor Swift and Bitcoin were named among the most popular Alexa queries of 2024
-
Investing for children this Christmas – five ideasIt might not come with a shiny ribbon, but an investment fund could be the gift that keeps on giving. We share five ideas if you are investing for children this Christmas.
