The number of underperforming, or “dog”, funds has risen by a third this year, new data has shown.
This is partly due to the gulf between the performance of different styles of investing. The pandemic has exacerbated this, but value and income investing have lagged behind growth investing for a while.
How bad could having an underperforming fund be?
Bestinvest’s Spot the Dog report has been exposing badly performing funds since it launched in 1994. It named 119 market investment funds in its latest report, collectively representing £49.6bn in customer’s long-term savings. The research uses statistical fund performance data to identify funds that have performed badly compared to their benchmark.
The difference in performance levels is striking. While the average fund in the IA Global sector posted a 32.4% return, the best performer managed to make a 162.6% return. The poorest ended up down 9.6%.
This highlights the need to be super selective when choosing a fund manager to look after your cash. It also shows the importance of regularly monitoring your investments and check whether they are delivering value for money.
Fund giant Invesco retained the “top dog” spot for the sixth time in a row, with 11 funds worth £9.2bn of assets. Jupiter climbed up to second place, after acquiring Merian Global Investors last year, while St. James’s Place and Schroders came in third and fourth place, respectively.
The highest count of consistent underachievers was found in the global equities sector, while North America had a prolific number of dog funds at 21.
What should I do to avoid dog funds?
We select funds only after deciding where to invest. We set a high bar to assess whether a fund trying to outperform the market it is investing in is “pedigree”. The only way you can guarantee not holding an underperforming fund is to not hold one which could outperform. This would mean holding a “passive” or “index” fund instead. These funds deliver whatever they are investing into (UK Equities, US Equities etc) as simply and inexpensively as possible.
When dealing with your money it is sometimes better to try and aim for par. If you try to hit birdies and end up getting bogeys you could do damage to your financial plan and your financial future.