St James's Place was one of the companies with the largest number of funds in the dog house, according to Bestinvest's latest Spot the Dog report.
SJP, Abrdn and Jupiter all had six funds represented on the list but SJP's funds accounted for a total of £5.74bn in assets - putting the company in second place in the dog rankings.
Jupiter’s six funds totalled £988.6mn, while Abrdn’s comprised £1.84bn.
A ‘dog’ fund is defined by Bestinvest as one which failed to beat its benchmark over three consecutive 12-month periods, and which has underperformed its benchmark by 5 per cent or more over the entire three-year period of analysis.
The largest of SJP's dog funds was the £3.05bn Global Equity fund but its other funds in the dog house included the Greater European Progress, Continental European, Global Smaller Companies and Global Emerging Markets.
A spokesperson for SJP said: “Last year, we continued to take steps to future-proof the performance of our funds and portfolios. This includes merging funds, introducing over a dozen fund managers and removing risks by pairing managers with complementary styles. These changes aim to evolve our fund range and provide smoother long-term returns for our clients.”
In the first half of 2021 SJP was responsible for four ‘dog’ funds worth a lesser £3.92bn. In the second half of 2021, it accounted for six of the top 10 most expensive ‘dog’ funds.
But the firm’s spokesperson said over the past decade, its average client has seen their wealth “more than double”, totalling a return of 7.7 per cent year-on-year net of all fees.
“When assessing performance, it’s important to do so on a like-for-like basis. SJP fund performance is shown net of all charges, including ongoing advice and administration, and therefore these analyses do not make accurate comparisons,” they concluded.
SJP changed the managers of its largest ‘dog’ fund, its £3.05bn Global Equity fund, in November and has also added an ESG overlay.
Jupiter declined to comment while an Abrdn spokesperson said the six funds on BestInvest’s ‘dog’ funds list represent just 4.5 per cent of its total assets in the UK wholesale market, out of around 120 UK mutual funds.
“Four of the funds are equity income strategies. Equity income as a style has underperformed over the last five years, given it lends itself more to the value style of investing.”
They added that performance of Abrdn’s ASI World Income Equity and ASI UK High Income Equity funds have shown “some encouraging signs of improvement”, with both appearing in the top quartile of their respective Investment Association in the last half of 2021.
JP Morgan’s US Equity Income fund was the largest single ‘dog’ fund in the second half of last year.
The fund, which controls some £3.92bn of investors’ money, underperformed by 32 per cent compared to its North America index.
While this was the only JP Morgan fund to make the ‘dog’ list, it was the only fund north of £1bn in assets to appear on BestInvest’s ‘20 worst performers’, out of the 897 equity funds analysed. JP Morgan declined to comment.
It has been a difficult period for equity income funds - with many companies suspending dividends during the Covid-19 pandemic.
Despite a recovery in dividends, this explains why a number of 'dog' funds were in the Global Equity Income sector.
Overall, the number of ‘dog’ funds rose to 86 between July and December 2021, up from 77 in the previous six-month period. Based on their current size and ongoing fees, these funds would generate annual fees for £463mn in a flat market.
Assets in these funds also jumped by 54 per cent, from £25.6bn in the first half of last year to £45.4bn in the second half.
Invesco had four ‘dog’ funds on the list, totalling £4.97bn. At the start of 2021, it had 11 funds worth £9.2bn on the list.
The report said the internal shake-up of its investment team “appears to be paying dividends”.
Though Invesco's UK Equity High Income and UK Equity Income funds have still struggled.
The funds, managed by Neil Woodford until 2013 and then by Mark Barnett until 2019, are now under new management.
“The environment in 2021 should have been better for the funds’ style and the management has had plenty of time to effect a change in fortunes,” Bestinvest's report said. “Investors continue to drift away, but there’s still £4.34bn in these poorly trained pooches.”
A spokesperson for Invesco said over the past two years, it has made a number of positive changes to portfolios, teams and processes across some of its UK range.
“As a result performance has substantially improved,” they said. “However, we must emphasise that this is a long-term and iterative process, and it will take some time for the impact of these changes to be reflected in the longer term figures. Our fund managers remain focused on delivering the best possible outcome for our clients.”
Jason Hollands, managing director of Bestinvest, said in recent years it has been tougher for investors to identify weak funds, due to low interest rates and central bank money-printing programmes pushing share prices higher.
“Most funds investing in equities have generated gains irrespective of the skill of their managers,” he explained. “This rising tide has helped to disguise some bad decisions from fund managers who have earned handsome fees in the process.”
Hollands reckons with inflation pushing up borrowing costs and interest rates, growth sectors such as technology may begin to suffer this year whilst the shares in banks claw their way back.
ruby.hinchliffe@ft.com
