Apathetic investors urged to ditch dogs

Big-name firms including Schroders, Fidelity, F&C and UBS are accused in the latest Spot The Dog report by broker Bestinvest of letting down  millions of investors paying often expensive fees in search of investment growth.

The figures are revealed as investors plough money into equity funds to capitalise on resurgent markets. But experts say too many people allow under-achieving fund managers off the hook by failing to move to better-performing vehicles.

Bestinvest’s bi-annual report, launched 20 years ago, names and shames the unit trusts and open-ended investment companies that time  and again fail investors. It picks out those funds guilty of underperforming both in each of the past three years and by more than 10 per cent over the three years as a whole.

There are currently 59 funds worth £13.3bn sitting in the kennel. While that’s five fewer dog funds than six months ago, rising markets have boosted the value of underperforming assets by £1.2bn over that period.

More than a fifth of UK funds investing in North America are labelled as dogs in the latest update, while 17 of the 59 are in the massive global sector. The biggest single culprit this time is fund management giant Schroders, with three so-called dog funds worth £4.1bn.

But there’s better news for those with money in funds run by Scottish Widows and Swip. The Edinburgh-based fund managers are perennial occupants of the kennel, with four funds worth almost £4bn in the doghouse earlier this year and 11 in the equivalent report three years ago.

Following improved performance, just the £114 million Swip UK Opportunities fund is singled out this time, although the firm’s UK equity manager, James Clunie, leaves this month to join Jupiter Asset Management.

Other Scotland-based fund management firms that have a fund in the doghouse include Standard Life, Baillie Gifford, Martin Currie and Ignis.

A number of funds that remain poor performers have benefited from the market rally of recent months, noted Jason Hollands, managing director at Bestinvest. But he added: “Sadly the funds listed in Spot The Dog represent the tip of the iceberg of poor performance because the criteria we have set is designed to focus on the very ‘worst of the worst’.”

But many investors continue to reward poor performance by sticking with failing funds and paying for the privilege in the form of often extortionate charges, he said.

“In our view financial product providers too easily get away with dismal or uninspiring performance, benefiting from a combination of investor inertia and advisers failing to provide a satisfactory level of monitoring on investments they have previously recommended to their clients.”

Tom Munro, owner of Tom Munro Financial Solutions in Larbert, agreed. “Apathy is the main reason people have money invested in poor-performing funds,” he said. “Annual investment statements tend to be ‘put in a drawer’ without a second glance, with often catastrophic longer-term consequences for overall returns.”

So how do you differentiate between a fund going through a rocky period and one that simply isn’t doing the job?

One way is to use websites such as www.trustnet.co.uk and www.iii.co.uk to compare funds with their peers over different time periods.

“Recognising you are invested in underperforming funds can appear rather ambiguous. However, moving out of underperforming funds is relatively straightforward as virtually all investment providers offer free switching within their range of fund offerings,” said Munro.

“If the assets are held on a funds supermarket or wrap platform you have a virtually unlimited choice of replacements.”

He recommended seeking advice to ensure your investments stay on track to meet your objectives.

“The difficult part is weighing up where to reinvest due to the complexity of choice, and the main consideration is always tolerance to risk –  so as an alternative to going it alone, speak to an independent financial adviser who can arrange this simple transaction for you for a small fee.”