The worst investment performer in the latest notorious list of ‘dog funds’ is, unsurprisingly, Neil Woodford’s doomed equity income fund.
The fallen star manager’s two former Invesco Perpetual funds are also named and shamed among the ‘biggest beasts’ – the poor performers holding the largest sums of customer money – in Bestinvest’s Spot the Dog report.
In a major red flag with hindsight, a year ago the report called out Woodford’s investment firm as one of the ‘main culprits’ for disappointing returns, four months before the suspension of his flagship fund.
Sad dog: Bestinvest always stresses that its report is not a ‘sell list’ – though Woodford investors may rue not taking greater heed of its findings last year
A total of 91 underachieving funds, holding £43.9billion of savings and raking in an annual £410million of fees and costs, appear in the newest publication compiled by DIY investing platform Bestinvest.
To be labelled a dog, a fund must have failed to beat its benchmark for three 12-month periods running and also underperformed by five per cent or more over the entire three years. The full 24-page report is available to download for free here.
The lowlights of the latest report include:
Top Dog: This spot was taken by Invesco for the fourth time, with its tally of dog funds rising to 11. Together they represent over £13billion of investor money, and make up nearly 30 per cent of all dog fund assets.
Kennel Club Corner of Shame: Some 30 per cent of North America funds were classed as dogs, the sector with the highest proportion, followed by the European sector with 19 per cent.
The Big Beasts: This list holds 11 funds, each holding more than £1billion of assets, run by groups such as Invesco, M&G, Hargreaves Lansdown and Schroders (see below).
The UK Pack: The UK sector includes 22 dog funds, holding assets worth £20.4 billion. Some 41 per cent of this money sits in funds run by Mark Barnett, successor to Woodford at Invesco, who manages his old Income and High Income funds.
Put Down: After entering the kennel last year, Woodford’s now renamed LF Equity Income fund is currently being wound up, leaving investors sitting on significant losses. It is down 46 per cent over the three years to the end of December 2019 compared to the market in which it invests, after fees.
*This is the extent to which the fund has delivered a lower return over the three years to end December 2019 than the market in which it invests (after fees). The value of £100 after three years includes the reinvestment of any dividends. (Source: Bestinvest)
Bestinvest always stresses that its report is not a ‘sell list’ – though Woodford investors may rue not taking greater heed of its findings last year.
‘It is based purely on factual analysis of past performance which is not necessarily a guide to how a fund will perform in the future. Indeed there may be good reasons to believe that future prospects are better,’ it says.
How hastily should you dump a fund losing money?
The traps to avoid between tolerating negative returns and bailing out too quickly… Read more here.
‘However, funds that appear in it do require further investigation. Unless there are good reasons to believe performance will turn around based on an assessment of its prospects, it may make sense to switch to a pedigree picks fund.’
See below for more on Bestinvest’s pedigree list.
Bestinvest notes ‘in the interest of fairness’ that Artemis Global Income is named as a ‘dog’ in its report, yet also features in its top-rated funds list.
‘Spot the Dog isn’t a list of funds that we think you should sell automatically – it’s a statistical analysis of how funds have performed over the last three years,’ it says.
Investment houses named and shamed
Jason Hollands, managing Director at Bestinvest, says: ‘2019 was overall a fantastic year for stock markets across the globe, providing investors with double-digit returns.
‘In such an environment it is all too easy to assume that the managers of your investment funds must be doing a great job.
‘However, in many cases the returns enjoyed have had little do with the decisions taken by fund managers and they may be substantially lower than the gains delivered by overall markets.
‘In these circumstances, investors have basically paid fees for little or no added value.
‘Lagging market gains is one thing, but in some circumstances things can be much worse, in the form of outright losses. In our report 12 months ago, we highlighted the Woodford Equity Income fund as a “dog” having already moved the fund to a “switch” rating on Bestinvest in early 2018.
‘The fund makes its final appearance in Spot the Dog in this edition, under the banner of LF Equity Income, as the fund’s authorised corporate director, Link Fund Solutions, has decided to make the temporary suspension permanent, removing Woodford as manager and closing the fund altogether.
‘While this has been a shocking and highly unusual saga, it is an important reminder of how incredibly important it is to regularly review your investments and to potentially make changes.’
Which sectors and firms deserve a pat on the head?
Bestinvest says the UK Smaller Companies sector enjoys a high success rate and remains notably ‘canine-free’.
Firms deserving of treats for improved behaviour are Aberdeen Standard, BlackRock, Fidelity and Janus Henderson, which escaped the top 10 worst performers.
Their replacements included JP Morgan, Schroders, Hargreaves Lansdown, M&G and Jupiter.
Bestinvest praises the following firms for avoiding the kennel this time, with no dog funds whatsoever: Aviva Investors, Baillie Gifford, BMO, Evenlode, First State, Fundsmith, Investec, Lindsell Train, Kames Capital, Legal & General, Royal London and Stewart Investors.
Which funds make the ‘pedigree’ list?
How to research investment funds and trusts
These are Bestinvest’s current top-rated funds that have track records of at least three years, across the sectors featured in the Spot the Dog report.
‘These ratings by our research team are based on both statistical and qualitative assessment of the current fund management teams and do not indicate that these funds are the top past performers,’ it says.
You will have to download the report to see the full list, but here are the top entrants for each sector.
UK All Companies
Lindsell Train UK Equity: Three year return on £100 – £147
UK Equity Income
JO Hambro CM UK Equity Income: Three year return on £100 – £123
BlackRock European Dynamic: Three year return on £100 – £142
Europe Small Cap
Barings Europe Select: Three year return on £100 – £133
Baillie Gifford Japanese: Three year return on £100 – £131
Loomis Sayles US Equity Leaders (GBP): Three year return on £100 – £156
First State Asia Focus: Three year return on £100 – £144
Global Emerging Markets
Fidelity Emerging Markets: Three year return on £100 – £138
Baillie Gifford Global Discovery: Three year return on £100 – £171
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