The report - a six-monthly study which names and shames the worst performing equity funds - has identified 77 funds which meet the dog fund criteria, down from the 119 funds identified six months ago.
According to the report, funds benefitted from a “significant rotation” in markets since the announcement of a successful Covid-10 vaccine, while fund groups are also upping their game following the introduction of annual value assessments.
The fund groups in the doghouse include HBOS, Invesco, St James’s Place, Scottish Widows and Abrdn.
HBOS tops the list, with £6.85bn across five funds ranked as poorly performing, which are all advised by Schroders.
The funds include the Halifax UK Growth, UK Equity Income, North American, European and Far Eastern.
A spokesperson for HBOS and Scottish Widows said: “These equity funds (often described as quant or multi-factor equity) are designed to bring benefits to investors over the long term, and therefore recent market performance should not be the sole basis to determine the overall performance of this style of investment.
“We believe the long-term outlook means this investment style is still appropriate for our customers’ investments.”
Invesco is second on the list, with three funds worth £5bn listed as underperforming.
However, the report noted the firm seems to be “reaping the benefits” of a new chief investment officer after appearing in the top spot in the hall of shame in the past six Spot the Dog reports.
The three Invesco funds appearing in this year’s report (US Equity, UK Equity High Income, and Income) are in comparison to the eleven funds appearing six months ago.
In December, Invesco’s new chief investment officer said she was “really pleased” with the progress made by the fund since former-star fund manager Mark Barnett left the company earlier that year.
Stephanie Butcher told FTAdviser Invesco had made “a lot of changes” since Mr Barnett’s exit in May in a bid to ensure the firm had the “right mix” on the investment floor.
A spokesperson for Invesco added there has been nearly a 50 per cent turnover in holdings within the UK Equity High Income and Income portfolios.
She added: “This type of restructuring is not done in haste and has been undertaken with care to ensure any buying or selling is done at the best time, in line with our investment disciplines to achieve the best outcome for investors. Performance has improved under the new joint managers and is a foundation that they can build from – and improve on – in years to come.”
St James’s Place is responsible for four funds worth £3.92bn on the list, and Scottish Widows is fourth on this list, with £2.73bn across four funds highlighted.
A spokesperson for SJP said: “Clients invest with St. James’s Place for 14 years on average and typically do so in tailored portfolios comprising between six and 10 of our funds. Over the past 10 years, we have grown clients’ wealth by 80 per cent after all charges on average, and by as much as double in our most popular portfolio.
“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.”
When broken down by sector, the highest proportion of dog funds are invested in North American equities (22 per cent). Second is global equity income with a 13 per cent share, followed by Europe (excluding the UK) with a 14 per cent share of dog funds.
The report said: “The North America sector has seen the number of dog funds decrease as the sharp outperformance of the technology sector has diminished in recent months. Global equity funds often have a high weighting in the US and are subject to similar forces.”
It also highlighted that 17 UK equity funds made the list, up from 14 in the last report.
sally.hickey@ft.com
