Investments  

'Dog' funds down 35% as value assessments bite

“When assessing performance, it’s important to do so on a like-for-like basis. St. James’s Place fund performance is shown net of all charges, including ongoing advice and administration, and therefore these analyses do not make accurate like-for-like comparisons.”

In order to create the report, Bestinvest analyses equity funds with a minimum track record of at least three years and highlights any that have delivered a worse return than the markets they invest in for each of the last 12-month periods.

To appear on the list, the fund must also have underperformed the returns delivered by the market that it invests in by more than 5 per cent over the entire three-year period under review.

Jason Hollands, managing director at Bestinvest, said: “In most cases soaring markets have masked the fact that the decisions made by the managers of dog funds have actually detracted from the returns their investors might have received. Such funds represent poor value for money given the fees investors have paid.

“But on a more positive note, the latest report does show a sharp fall in the number of dog funds since our last edition. In a large part this is down to a much better period for managers who target cheap, undervalued shares rather than high growth companies."

He added there was a scarcity of funds that focus on smaller companies in the report. 

“This does seem to suggest that fund managers have a better success rate when investing in less researched parts of the market, which are also off the radar of passive funds,” he said.

'Significant rotation'

According to the report, the poorly performing funds represent £29.5bn in long-term savings, down from £49.6bn six months ago.

Bestinvest said this was down to a “significant rotation” in markets since the announcement of a successful Covid-10 vaccine.

“This has seen performance from those funds focused on some of the hardest hit parts of the market improve, coaxing them out of the doghouse.”

The report added: “ We would also argue that fund groups are upping their game. Many of the funds that have disappeared from the kennel of shame have done so because of a change in their senior management team. 

“In an increasingly competitive market, and with the regulator now requiring fund groups to publish annual value assessment reports to reveal whether they are delivering performance that justifies their fees, fund groups are showing greater willingness to bring their dog funds to heel.”