There are many reasons why funds go through periods of poor performance. Deciding whether to stay invested or switch is all about assessing its future prospects and whether you might be able to do better elsewhere.
Don’t sell automatically
It is important to stress that Spot the Dog is not a list of funds that should be automatically sold, as it is based purely on factual analysis of past performance which is not necessarily a guide to how it will perform in the future. Indeed there may be good reasons to believe the future prospects are better. For example, there are many different ways of investing and some funds have distinctive styles or investment approaches that can go through periods that are deeply out of step with the current markets, but could be about to come back into favour. Some managers are better suited to tougher times, others to rising markets.
It can also be the case that action is underway to improve performance. For example if a new fund manager with a strong, proven track record elsewhere is appointed or a change of investment approach is now being applied to a fund that has historically underperformed, performance could be turned around.
So, Spot the Dog is not a ‘sell’ list. However funds that appear in it do require further investigation. Unless there are good reasons to believe performance will turn around based on an assessment of its prospects, it may make sense to switch to an alternate fund. Bestinvest has been assessing fund managers for more than 20 years and our fund research team, which is one of the largest in the industry, has developed a number of proprietary techniques to distinguish the top pedigree funds from the mutts. This includes both statistical and qualitative analysis and involves hundreds of fund manager interviews each year.
Consider switching to top-performing alternatives
For each sector where we highlight dog funds, we also provide a comparison with the pedigree picks funds selected by our research team. However, successful investment is all about playing percentages and there is no certainty that funds that meet our rigorous criteria today are destined to outperform in the future.