Spot the Dog focuses on identifying those funds that warrant special attention because they have performed particularly badly compared with their benchmark over a reasonable time period and consistently so.
The cost of underperformance
The financial services industry has earned an unfortunate reputation for overpromising and under-delivering. Investment funds are heavily promoted during periods when they are riding high in the performance tables but the reality is that, over the long term, many funds fail to beat their benchmarks. In most cases this is because the manager’s decisions have not added value and/or because the costs are too high.
Dog funds collectively represent £18.0 billion of investor cash
- This edition lists 30 dog funds, down from 54 six months ago. However, the decline is in large part due to our decision to analyse the lower cost, commission-free versions of funds from this report onwards, as it is now three years since the introduction of new rules removing commission as a means of paying for financial advice. This means that many disappointing funds narrowly missed inclusion because of lower fees, which slightly improved returns
- Despite the drop in the number of funds included, the level of assets held in dog funds remains the same as it was in the previous edition at £18 billion
- The kennel of shame remains dominated by some big beasts, with the three largest hounds representing 60% of total dog fund assets. Worryingly, all three are managed by the same company, Prudential-owned M&G. The leader of the pack is the £5.5 billion M&G Global Dividend fund, followed by serial underachievers M&G Recovery (£3.4 billion) and M&G Global Basics (£1.8 billion)
- Global equities is the area with the largest number of dog funds, with 16 funds across the combined IA Global and IA Global Equity Income sectors (down from 18 six months ago). These funds represent 15% of the total funds in these sectors
- The sector area with the second-highest manager failure rate after the Global sector is North America, where the six dog funds identified represent 13% of the US funds universe
- Dog funds are however a rare breed when it comes to some sectors. In UK Equities, only two funds out of a universe of 191 were dog collared, and in Europe we rounded up just one mutt out of 77 funds. Japan, Asia Pacific ex Japan and Global Emerging Markets are other sectors where dog funds are nearing extinction
- Groups with large fund ranges are inherently more likely to feature in Spot the Dog, since few companies are consistently good across the board. In the current report only two stood out as having a number of funds included. Aberdeen Asset Management has six funds (down from 11 in the previous edition) while M&G has five funds
Surprisingly many investors put up with weak or pedestrian performance by either not monitoring their investments regularly, receiving poor service from the adviser who originally recommended the investments or through simple inertia.
The rigorous research within Spot the Dog can help you identify where to make improvements to your portfolio. Simply download the guide and login to your portfolio to get started.