If you haven’t given your portfolio a check-up for a while, then maybe you should take a look at a recent survey from independent financial adviser Bestinvest – just to make sure none of your funds feature in it. The criteria for the bi-annual ‘Spot the Dog’ funds guide are simple – if a fund has underperformed its benchmark by at least 10% over the past three years, then it gets put on the dogs list. The bad news is that, according to the latest guide, the amount of money sitting in poorly performing funds has risen almost four-fold since January 2006.
The group identified 72 underperforming funds, worth a total of £12.6bn. That’s a big jump from January last year, when just 38 funds worth £3.3bn made the list. The worst-performing fund group is Axa, with £1.25bn worth of funds in the dogs category. This is mostly down to the performance of its £1.17bn UK Equity Income Fund, which over three years would have turned £100 invested in it into £148. That’s far worse than the average FTSE 100 tracker, which would have returned around £160. Axa is closely followed by Henderson, HSBC and Schroders, while a less surprising name on the list is Canliffe, which has been a perennial pooch since Bestinvest started the guide nine years ago. Of the £1.7bn it manages, £990m is in dog funds. Fidelity is next. It may have “a vast team of investment analysts”, but it “still can’t beat the FTSE All Share on its mainstream UK fund”, says the IFA.
But don’t think you can relax if your fund doesn’t appear on the list – funds have to be particularly bad to be named and shamed as dogs, but most are mediocre at best. “Only around a third of active UK and US managers beat the index over three year periods,” says Bestinvest’s Justin Modray. It’s a shocking figure, which should make investors revaluate their holdings, says Grainne Gilmore in The Times. But where to put your money? An idea worth investigating comes from Henderson Rowe (tel: 020-7661 8200). The Dogs of the FTSE 100 fund invests in the 15 highest-yielding stocks on the blue-chip index. It has just been launched, but the strategy behind it is well-known, and if the fund had been running four years ago it would have returned 115% by now, against 57% for the FTSE 100. The idea is simple. “When companies are out of favour with investors, their shares will fall too far, just as the stars usually fly too high. When investors realise that, the shares will recover sharply, producing healthy capital gains,” says Heather Connon in The Observer. Those are the only sorts of dogs you want in your portfolio.
For a free copy of the ‘Spot the Dogs’ guide from Bestinvest, call 0800 037 0600