Number of ‘Dog’ funds soars by 50%

The latest edition of the guide, compiled by Tilney Bestinvest, singles out 54 funds that have consistently underperformed their benchmarks by at least 10 per cent in the previous three years.

This represents a 46 per cent rise from the 37 vehicles identified six months earlier. However, the level of assets held in such portfolios remains broadly flat, having risen from £17.6bn in summer 2015 to £18bn.

While the number of underperforming funds has increased, their presence varied significantly over different sectors.

The report identified global equities as the area containing the most ‘dog funds’, with 18 across the combined Investment Association (IA) Global and Global Equity Income sectors.

US equity funds were another major culprit, with the IA North America sector’s 10 ‘dog products’ representing around a fifth of the grouping.

Equity funds in the UK fared better, with just eight vehicles out of a universe of 246 making the list, while just four severe underperformers were identified from 97 European equity products.

A number of asset managers featured heavily on the list.

“Groups with large fund ranges are inherently more likely to feature in Spot the Dog, since few companies are consistently good across the board,” the report noted.

Aberdeen Asset Management topped the list of shame with 11 underperformers, a result partly blamed on its house style.

“Asian and emerging market funds have lost their lustre, and the common process means the malaise has spread across the group,” the report said.

“The real picture is even worse, as Aberdeen is also the underlying manager of seven other funds in the report, meaning its investment teams are running their portfolios on a third of funds in this edition.

“A strong house process can be an advantage, but too much commonality can take away the individual flair with which managers add value.”

While the Aberdeen funds in the list hold £3bn in assets under management, M&G again topped the list in terms of overall assets in ‘dog funds’.

Its four underperforming vehicles accounted for £6.4bn in total, with the M&G Recovery and M&G Global Basics funds again prominent.

“[These are] former flagship funds that look more like oil tankers,” the report said.

Other repeat offenders were St James’s Place and Scottish Widows, each with three funds in the list.

Meanwhile, groups including Aviva Investors, Axa Investment Managers, Artemis, Baillie Gifford, Columbia Threadneedle and First State were praised for “being completely absent from the hall of shame”.