Join our community of smart investors

£20bn held in 'dog funds'

£20bn of investors' money is invested in funds that consistently underperform their benchmarks
July 23, 2014

Nearly £20bn of investors' money is invested in funds that are consistently failing to beat their benchmark indices.

Some 49 open-ended funds have underperformed their benchmarks by at least 10 per cent over the past three years, according to Bestinvest's latest Spot the Dog report, which identifies poorly performing funds.

The fund houses with the most funds in the dog house, according to the report, are M&G, Schroders and Standard Life. Among the large fund groups whose funds did not appear in the report, are Artemis, Baillie Gifford, First State, Henderson, Invesco Perpetual and Jupiter.

The report showed Global funds were the most likely to have underperformed, with 20 funds, or 16 per cent of them, branded as "dog" funds. It also found that 13 per cent of North American funds are 'dog' funds, although this is a major improvement on last year, when 22 per cent of them had underperformed enough to receive the label.

More successful were European ex-UK funds and UK Equity Income funds, none of which were rated as dogs, suggesting active fund managers in these areas have had much greater success.

One fund highlighted for consistently poor performance was Standard Life UK Smaller Companies Fund (GB00B7FBH943) - the open-ended cousin of one of our Top 100 Funds, Standard Life UK Smaller Companies Trust (SLS). Both are managed by star fund manager Harry Nimmo, but the fund returned 24 per cent over three years to 22 July 2014, while the investment trust version returned 27 per cent (in NAV terms) over the same period. Over five years the difference in performance is even more marked (173 per cent from the investment trust compared with 139 per cent from the fund), showing the positive effect an investment trust structure can have on performance.

Four of the IC's Top 100 Funds also appeared in the report's list of "pedigree" funds, which were deemed to be the most consistent top performers in each sector. These are Lazard Emerging Markets Fund (GB0008469586), First State Asia Pacific Leaders (GB00B54S3722), GLG Japan Core Alpha (GB00B0119933), and Liontrust Special Situations (GB00B87GRQ11).

Performance of the four IC Top 100 Funds that are also Bestinvest "pedigree" funds

Fund1-year performance (%)3-year performance (%)5-year performance (%)
Liontrust Special Situations Fund5.741.7166.5
GLG Japan Core Alpha6.014.733.2
Lazard Emerging Markets Fund6.75.6060.9
First State Asia Pacific Leaders3.917.178.4
Source: Trustnet, as at 22 June 2014