JASON HOLLANDS
We publish today the latest instalment of our controversial twice-yearly Spot the Dog report, which for two decades has ‘named and shamed’ consistently poor performing investment funds.
Each of the funds in the report met the strict criteria applied by Tilney Bestinvest of being available to retail investors and failing to beat their benchmark over three consecutive 12-month periods and by 10per cent or more over three years. These tough filters ensure the report collars the very ‘worst of the worst’.
The fund house with the largest assets under management within dog funds remains Prudential-owned M&G with £11.9 billion and 60per cent of the total dog fund assets. The fund house has held this position for the last four consecutive reports from July 2014. This is due to the continued woes of its former flagship M&G Recovery (£3.4 bn) and M&G Global Basics (£1.8bn) funds, along with new entrant, the massive £5.48 bn M&G Global Dividend fund.
When ranked by number of funds in the report, the unwanted trophy of ‘Top Dog’ remains with listed fund giant Aberdeen Asset Management, which has been battling massive outflows. However in the previous edition of the report the company had 11 dog funds, so it has almost halved the number - let’s hope the improving trend can be sustained.
There are a few sectors where dog funds are a rare breed - these include UK Equities, Europe, Japan, Asia Pacific ex Japan, and Global Emerging Markets.
While many groups will from time to time have an unruly pup in their fund range, notable absentees amongst fund groups include AXA, Artemis, Baillie Gifford, Baring, BlackRock, BMO Global, First State, JO Hambro CM, JP Morgan, Liontrust, Man GLG, Royal London, and Standard Life Investments.
Warren Buffet famously quipped that ‘only when the tide goes out do you discover who was wearing bathing trunks’. After several years of strongly rising markets, which lifted the value of most stock market funds and helped to mask some poor decisions from managers, the market environment has become much tougher: over the last year concerns about the Chinese economy have seen turbulence in Asia, commodities have had a rollercoaster ride and scepticism has grown towards Central Bank policies.
Additionally, in the months leading up to the UK’s European Referendum there was an added volatility in the UK and European markets and a reversal in the fortunes of mid-sized UK companies in favour of larger ones.
In a more volatile environment, the decisions a manager makes over sectors or stocks can make a very big difference in returns and it’s important to be selective about who you entrust your money to.
While fund management companies like to push their star managers and the funds that happen to be doing well at the time, the reality is many of them will have skeletons in the closet that don’t get mentioned in advertising campaigns.
The financial services industry has an unfortunate habit of over-promising and under-delivering.
When all is going well, funds are heavily promoted and managers are feted like City rock stars. Yet some of these stars may have simply got lucky and turnout to be shooting stars that crash out of orbit.
It’s a simple fact that many funds fail to beat their benchmarks over the long run, after all the fees have been taken – investors need to consider their fund managers carefully.
Surprisingly, many continue to put up with weak or pedestrian performance and it’s the fund management companies that benefit. This suffering in silence can be a result of investors not reviewing their investments, a lack of ongoing advice and information from the adviser who may have originally recommended the investment, or simply inertia and disinterest.
Yet, with many set to rely on the returns from ISAs and pensions for future financial security, performance really does matter.
Jason Hollands is managing director of Tilney Bestinvest
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