Assets in the worst performing (dog) funds have risen a massive 80% to over £19bn so far in 2008 compared to the end of 2007, according to Bestinvest's biannual Spot the Dog report.
Volatility of the markets was given as the main reason for the increase in badly performing assets in 92 funds.
The rise in poorly performing funds invested in the UK was also noticeable, Bestinvest says, with a doubling of Dog assets to £12.6bn.
Hugo Shaw, investment manager, Bestinvest, explains: “In particular, there has been a marked increase in the number of equity income Dogs, which now account for over half of the assets on the Dog list. The situation is the reverse of the last bear market.
“Then ‘value’ or equity income funds insulated investors from the worst capital losses as the Technology Media and Telecoms bubble burst, and the Dog List was populated mainly by funds from the IMA All Companies Sector.”
However, equity income funds have been unable to protect investors this time due to their larger weightings in high yielding sectors such as banking which have been badly hit.
There has also been a complete change in the top five worst offending fund management groups.
Newton, M&G / Prudential, HSBC Investments, AXA Framlington and Threadneedle have replaced previous offenders. They manage £8bn of Dog funds between them which is twice the amount found in January’s study.
Improvement was shown by previous underperformers Schroders and Scottish Widows but Fidelity, Invesco Perpetual and Aberdeen have been pushed down the ranks by groups that have posted even worse returns, according to Bestinvest.
Steve Marriot, senior research analyst at Bestinvest, comments: “When markets are displaying steady returns and volatility is low it’s hard for managers to go far wrong. All they need to do is keep broadly in line with the market and their performance will be close to their peers. However, when share prices are unstable it only takes a few bad decisions to generate poor performance and turn them into Dogs.”
- Newton- Newton’s £3bn Higher Income fund qualifies as the biggest Dog. It helped take Newton to the top of the group offender’s lists’ with the £30m Japan Growth fund also a drag on performance.
- M&G / Prudential- "Whilst M&G's own range isn't entirely dog-free, it's the funds at parent company Prudential that have thrown this group onto the list, with 6 out of 11 qualifying as dogs. What is most worrying for Pru investors is that their Dog range covers many different sectors including the UK, international and American desks. This suggests a deep-rooted problem and so investors in Prudential funds may want to consider an alternative provider.”
- HSBC Investments- “HSBC has never been able to restore the former glory of the £800m+ UK Growth and Income fund and the £300m Income fund after the departure of Tim Russell. They are currently looked after by HSBC’s Multimanager team. The healthy size of these two infamous funds and the poor performance of the smaller Greater China fund propel them into third place.”
- AXA Framlington- “Despite an impressive career Manager Record Index (MRI) George Luckraft has allowed his £1bn UK Equity Income fund and £300m + Monthly Income fund to turn feral. For several years, these funds posted strong returns due to the contribution from the holdings in small and medium sized companies. However, in recent times the illiquidity of these stocks has proved to be a burden. Luckraft has been unable to remove these from his portfolios at a time when their falling values have dealt a damaging blow to performance, ultimately leading to Dog status.”
- Threadneedle- “Another former star that has turned into a Dog, Threadneedle’s European Select fund was once a flagship for the group, but performance has never been the same since Darrell O’Dea left. Since then different names have been at the helm but none have been able to steer this £850m fund out of Dog territory. The £60m Japan Smaller Companies fund also qualifies as a Dog just big enough to push the group into fifth spot.”
Bestinvest reviews UK registered, open-ended retail funds for its report. To qualify as a Dog a fund will have:
- Underperformed its benchmark in each of the last three years
- Underperformed its benchmark by at least 10% over the past three years cumulatively (this weeds out tracker funds)
The report excludes funds that don’t have three year track records or where full data is not available including fixed interest, and several specialist sectors such as fund of funds.
Members of the public who wish to see a copy of the report should visit www.bestinvest.co.uk/dogs or call 0800 093 0700
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