Active Underperforming Investment Funds in the Doghouse

A rather well known investment broker produces a report twice a year called ‘Spot the Dog’ that highlights funds which are consistently underperforming.

Sadly, the number of funds, and therefore the amount of assets which continue to be held in these funds, is on the increase.

Underperforming Funds

The criteria is pretty simple: has a fund underperformed its relative index for the past three consecutive years and by more than 5% over those 3 years?

Since the last report in February, the size of these funds has risen by 142% to £46.2bn, from £19.1bn. That’s correct, there is £46.2bn of funds which would have been better sitting in a tracker fund for the past three years.

Now I get that some of those funds may deserve patience and will turn that around with stellar performance over the next three years to put them in an even better position, but does your IFA really have a crystal ball? If he does, it’s the same ball that told him to recommend those funds in the first place!

As an adviser, I hold my hands up. I don’t possess those skills. This is not me being humble. I don’t believe any human possesses the ability to see into the future, but that is what some advisers maintain they are able to do.

Global Equity

The worst sector was ‘Global Equity’ and in getting a little granular, it could be identified that underperformance came from funds which held none, or underweight positions, on the mega-cap tech stocks. So whilst I applaud a fund manager for at least having the convictions to not hold mega-cap tech stocks, it has cost them in performance. For those managers not in the dog house, in many cases they will have done nothing more than replicated the index, but at a higher annual charge.

Finally, good marketing and brand loyalty doesn’t necessarily translate to good performance. I take no pleasure in reading that £26bn of the dog funds are funds managed by St James Place. There are many hard working investors who remain loyal to them in spite of continual reports in the media around poor performance and high charges.

Choose Your Wealth Manager Wisely

You can never change your football team allegiance, but if your wealth manager is not giving you value, investors owe it to themselves to look at moving.