Bullish Scots cast aside woes to put more cash in equities

But many pay over the odds for poor investment funds, reports Jeff Salway

Scottish investors have more money in the stock market than at any time since the banking crisis began, according to new figures out today.

Confidence in the market outlook has improved in recent months, and while optimism remains in short supply, investors are casting aside their worries over the UK economy to take advantage of cheap equity prices.

Sign up to our daily newsletter

The i newsletter cut through the noise

The research is published as the latest Spot the Dog report from Bestinvest shows that investors are losing millions of pounds in consistently underperforming unit trusts, with Scottish Widows the biggest culprit.

The average Scottish investor has £29,792 invested in equities, £2,300 more than a year ago and almost £2,000 more than the UK average, Bank of Scotland’s latest investor outlook survey reveals. The amount held in equities by the average UK investor is at its highest for three and a half years, the figures show.

Just a quarter of Scottish investors feel confident about the prospects for the stock market over the coming year, compared with three in ten investors across the UK. The proportion of Scottish investors feeling apprehensive about the outlook for the UK stock market over the next 12 months has climbed to 46 per cent, up from 42 per cent six months ago.

But with returns from cash savings continuing to be wiped out by inflation, Scots are turning in greater numbers to stock market-based investments, according to Willie Raeburn, director of Bank of Scotland Private Banking.

“It does appear as though Scots are less confident about the overall market, and there is obvious concern about the erosion of savings,” he said. “However, Scots clearly see prices as depressed at the moment and are prepared to take a longer- term view by hanging on to equity investments.”

But while more Scots are putting money in equities, many are paying over the odds for investment funds that consistently fail to produce the goods.

UK investors have £9.24 billion sat in so-called dog funds, according to new research by broker Bestinvest. Its report singles out funds that have underperformed their sector benchmark by at least 10 per cent cumulatively over three years and underperformed the same benchmark in each of those years.

It found that while just 44 funds are falling short – compared with 94 six months ago – more UK-focused funds, in which investors hold most of their money, have entered the dog-house.

And investors are paying handsomely for the privilege of losing their money, forking out £133 million in annual management charges for dog funds over the last 12 months.

Almost £2.3bn is invested in dog funds run by Scottish Widows/Scottish Widows Investment Partnership (Swip), according to Bestinvest. The Lloyds Banking Group-owned brands, long-term residents of Bestinvest’s kennel, now have four dog funds, including the £1.4bn Scottish Widows UK Growth unit trust.

St James’s Place, majority owned by taxpayer-backed Lloyds, and Edinburgh-based Standard Life also feature among the firms with the most money in consistently underperforming funds.

Adrian Lowcock, senior investment adviser at Bestinvest, said: “Unfortunately there are still some managers who have not woken up to the new market conditions. Whilst the number of dogs has fallen, there are still a huge number of funds which underperformed their benchmark by 10 per cent over three years (108 funds).”

He urged investors in funds that fail to live up to their promises to take action.