Record number of underperforming ‘dog’ funds

Record number of underperforming ‘dog’ funds

A record 150 funds were classed as poor performers in a closely watched list of investment product returns, underlining the tumultuous impact of the coronavirus pandemic on stock markets.

The twice-yearly “Spot the Dog” list compiled by wealth manager Tilney Bestinvest, which names and shames the worst performing investment funds, reported a 65 per cent increase in the number of “dog” funds, up from 91 in February 2020.

Funds fall into this category when they have underperformed Tilney’s benchmark indices by at least 5 per cent over the past three years.

The pandemic created turmoil in stock markets, meaning many funds are still licking their wounds after steep losses early in the year.

Jason Hollands, Bestinvest managing director, said: “Markets have given investors a rollercoaster ride this year . . . major sectors like energy and financials have been hit really hard. This has resulted in very wide disparities in performance between fund managers, depending on where their funds were positioned.”

Funds heavily invested in technology stocks such as those run by Baillie Gifford have performed relatively well, underscoring a trend in the past few years of “growth” shares outperforming “value” shares.

“Value has been underperforming for some time, but that difference has become enormous in the pandemic. That is the single biggest reason we’ve seen an explosion in the number of funds,” said Mr Hollands. “Even some of the best value managers have found themselves hitting these criteria.”

Several “dog” funds also feature on Tilney’s Best Buy list of funds that it recommends to investors. These include Fidelity Special Situations Fund, which was the fourth worst performer, with performance down 9 per cent over three years, and Jupiter Income Trust, down 12 per cent.

Mr Hollands insisted the report was “not a sell list”, adding: “You should never buy or sell on past performance alone . . . but if you own any of these funds you should dig deeper to explore the case. Should you stay or should you go?”

Topping this year’s list of the largest poor performers was Invesco High Income Fund. Formerly managed by Mark Barnett, protégé of fallen stock picker Neil Woodford, the fund was known for its “value” style bias. With three-year losses of 26 per cent, £100 invested in the fund three years ago would be worth just £67 now, according to Tilney. After years plagued by poor performance and heavy redemptions, Mr Barnett left Invesco in May after 24 years.

Invesco manages 20 per cent of this year’s largest underperformers by value, and two of the top 10 by poor performance.

In response to the report, Invesco said: “Invesco has over the course of the year made several changes and improvements across the teams that manage these portfolios . . . our long-term focus and belief are that these valuation-disciplined funds hold an important role within clients’ portfolios.

“We believe we are correctly positioned to support our clients through these extraordinary and volatile markets, which are likely to stay for some time,” it said.

While the majority of the funds that feature in the Spot the Dog report are relatively small — with a median value of £133m — this year 18 of 150 ranked funds were worth more than £1bn. These included funds managed by large investment houses such as Invesco, St James’s Place, M&G and Fidelity.

St James’s Place had four of the largest underperforming funds. The third largest, St James’s Place Global Equity, with £2.4bn under management, was down 16 per cent over three years. Other underperformers included SJP Global (down 29 per cent), SJP UK High Income (down 26 per cent), SJP UK and International Income, down (37 per cent).

Addressing the report, SJP said: “Clients invest with St James’s Place for 14 years on average and typically do so in tailored portfolios comprising 6-10 of our funds . . . At a fund level, there is outperformance over all rolling 10-year periods against their relevant benchmark 84 per cent of the time, on average.”

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