Archived article: This article was correct at the time of publishing. Tax, investments and pension rules can change over time so the information below may not be current.

The investment funds you don’t want in your portfolio

The financial services industry has earned an unfortunate reputation for over promising and under delivering. Investment funds are heavily promoted at times when they are riding high in the performance tables but the reality is that over the long term most funds fail to beat their benchmarks. In many cases this is because the manager’s decisions have not added value or because the costs are too high. Yet 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.

Jason Hollands Jason Hollands
05 February 2014

Poorly performing funds can wreak havoc

If your hard-earned savings are sitting around in underperforming funds, the likelihood is that you will have significantly less money in the future. Our chart below shows what can happen.

Fund A is a dog fund and has underperformed its benchmark by 5% each year for the last three years. The benchmark has grown 7.5% each year for three years. The chart shows what would happen if this situation was allowed to continue over the long term.

Keep a close eye on the performance of your investments

Our message is simple: no matter how thoroughly you researched your choices ahead of investing, the fate of funds can change over time. If you are going to invest in funds, particularly those that are actively managed, then it is vital to closely monitor your investments or choose a service that will do this for you.

Spot the Dog –  helping you identify the worst-of-the-worst funds

Too many investors put up with serial underperformance so at Bestinvest we have campaigned to raise awareness of poor fund performance for almost two decades. We do this by shining a spotlight on those investment funds that are amongst the worst performers and publishing their names in our twice-yearly publication Spot the Dog. The results are based solely on statistical criteria relating to a fund’s past performance.

£22.32 billion of investor money is sitting in the worst-performing funds

The latest edition of Spot the Dog reveals:

  • There are 53 unit trust/OEIC (open-ended investment companies) dog funds down from 59 six months ago. However, soaring stock markets over this period and the appearance of three mammoth M&G funds (American, Global Basics and Recovery) have seen the level of assets included rocket 68% from £13.3 billion to £22.32 billion over the period.
  • The IMA sector with the largest number of dog funds remains the Global sector with 15 funds, representing 13% of the universe. However North America continues to be the area where the failure rate is highest, with 13 funds representing 22% of the universe making the hall of shame and confirming the reputation of the US equity market as death row for active managers.
  • M&G, F&C and Scottish Widows Investment Partnership (SWIP) each have three
    funds. In the previous edition M&G had no funds.

Download Spot the Dog

Download our latest edition of Spot the Dog to find out if you hold any underperforming ‘dog’ funds, to find out more about what to do if you have a dog fund and to discover best of breed fund alternatives.

Spot the Dog – pension edition

Concerned about the performance of your pension investments? Download Spot the Dog –  Pension Edition to find out which pension funds are failing to make the grade. Our guide features 113 funds with combined assets totalling £31 billion.

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Please note that Spot the dog is intended purely as a representation of statistical data. The value of investments, and any income derived from them, can go down as well as up and you may get back less than you originally invested. Prevailing tax rates and relief are dependent on your individual circumstances and are subject to change. If you are unsure about the suitability of any investment, you should seek professional advice.