INVESTORS have almost £23 billion languishing in underperforming funds run by some of the UK’s biggest asset management houses, research out today reveals.
More than 50 funds are singled out in the latest biannual Spot the Dog report from Bestinvest, which names and shames the vehicles that fail to deliver for investors.
The number of funds in the kennel has fallen slightly in the past six months, yet the value of the assets held in those funds has soared by almost 70 per cent to £23.2bn.
The research – which covers unit trusts and open-ended investment companies but not investment trusts – identifies funds that have underperformed in each of the past three years and by more than 10 per cent over the three years as a whole.
Among the big-name fund groups that feature are M&G (accounting for almost £12bn of the assets in the report), Schroders, Fidelity, UBS and F&C.
But things are looking up for investors with money in Swip funds, as the Edinburgh-based firm – being taken over by Aberdeen Asset Management – has just one product in the doghouse.
The firm has featured prominently in the report in recent years, but its only culprit this time around is the UK Opportunities fund (although Swip is also the investment manager on the two Scottish Widows funds included).
UK funds fare well overall, accounting for just a handful of dogs. In contrast, however, 15 funds in the global sector and more than a fifth of those that invest in North America are consistent underachievers.
The report comes as ordinary savers and investors pile more money into equity funds on the back of resurgent stock markets and growing economic confidence. But many investors leave their money in funds that habitually lag behind yet continue to rake in millions in charges.
Jason Hollands, managing director at Bestinvest, said: “It’s not enough to simply leave your investments to chance, investors must remain vigilant of the funds they hold. Spot the Dog is designed to weed out the worst of the worst; yet there are plenty of other underperformers which narrowly missed our strict criteria for inclusion.”
Many of the larger failing funds were bought through bank and building society branches, said Ian Finch, director of Martin Aitken Financial Services.
“An example of this would be the Halifax UK Equity Income fund, which has produced returns of 17.9, 23.5 and 90.9 over one, three and five years respectively,” said Finch. “The returns look appealing. But compare them to the Schroder Income, which over the same period has returned 28.4, 50.8 and 153.7 per cent.”
Fund sales through high street banks have plunged since the retail distribution review (RDR) took effect last year. The UK’s biggest banks responded to the RDR – which included a ban on commission on investment product sales – by closing their advice arms or restricting them to their most affluent customers. But with a large number of IFAs also abandoning their lower-value clients, the RDR has left many ordinary investors without access to advice.
And Finch warned that investors without access to advice risk incurring more costs through buying and selling the wrong funds.
“The typical cost of purchasing a fund is 3 per cent and to then sell and purchase an alternative may well incur a further 3 per cent,” he said.
That may be a price worth paying when it comes to getting out of consistently failing funds – but knowing which ones to ditch and which to hold on to is often difficult.
“What Spot the Dog really does highlight is the importance of reviews and an acceptance that while advice does cost, it’s a price worth paying,” said Finch.
The research comes just a few months after investors were warned that nine in ten funds with track records of at least a decade were “mediocre at best”. The report, by Fundexpert.co.uk, claimed that almost £270bn was being wasted on funds that are allowed to get away with “unacceptable” levels of performance.