As summer comes to a close, the August Bank Holiday provides a moment of relaxation before the busy month of September begins. However, investors have been unsettled by the recent release of the Bestinvest Spot The Dog study, which shows that £46.2 billion of the nation’s savings are invested in funds with abysmal performance.
Even if your funds are not included in the study, these findings should serve as a warning. Elliott Silk, head of wealth planning at Atomos, advises DIY investors to conduct regular portfolio reviews to ensure that their asset allocation aligns with their goals and risk tolerance.
The study identifies 56 funds as ‘dogs,’ with many of the largest being global funds that are typically considered core holdings in a portfolio.
In the doghouse: The latest Bestinvest Spot The Dog study which reveals that £46.2billion of the nation’s savings is sitting in funds with shockingly poor performance
Unfortunately, some fund managers seem to have overlooked the potential of artificial intelligence systems, such as ChatGPT, which have driven the share prices of American tech giants. Considering that the US markets represent a significant portion of the global stock markets, it would be imprudent to ignore them, especially when they exhibit signs of self-assuredness despite economic concerns.
St. James’s Place funds, particularly the misnamed Global Quality fund, account for £29.3 billion of the total identified in the Spot The Dog study. This performance could undermine the loyalty of even the most patient clients of this £4.6 billion FTSE 100 asset manager.
Other underperforming funds include Scottish Widows UK Growth, Artemis US Select, Columbia Threadneedle Responsible Global Equity, abrdn UK Smaller Companies, and Troy Asset Management Trojan Income.
To be included in the study, a fund must have underperformed its benchmark by 5% or more over a three-year period and also failed to outperform the relevant stock market in each of those years. These criteria suggest that the poor performance is not a temporary setback.
What’s the plan? In an ideal world, the managers of the 56 dog funds would contact investors to apologise and provide a recovery plan
For example, Baillie Gifford Global Discovery has consistently underperformed its sector average over the past decade. While this fund has returned 106.7%, its sector average stands at 135.9%. In comparison, Bestinvest’s selected global funds – Ninety One Global Environment, Fundsmith Equity, and Fundsmith Sustainable Equity – have achieved far better returns. Therefore, it’s crucial to evaluate a fund’s performance and prospects before making investment decisions.
It’s unwise to sell a fund purely based on instinct or irritation that it is labeled a ‘dog.’ It’s important to understand the reasons behind the poor performance and avoid making impulsive decisions that could lead to real losses.
Jason Hollands of Bestinvest emphasizes that the Spot The Dog study is not intended as a sell list. Rather, it serves as a reminder for investors to assess the performance of their holdings critically.
Ben Yearsley of Shore Financial Planning advises investors to keep an open mind and conduct thorough research. By examining fund factsheets, comparing holdings and benchmarks, and utilizing the tools offered by major platforms like AJ Bell, Bestinvest, and Interactive Investor, investors can make informed decisions about their portfolios.
In an ideal world, the managers of underperforming funds would reach out to investors, apologize, and present a recovery plan. However, it’s unlikely to happen. As a result, investors must advocate for themselves and carefully evaluate their investments.
While parting ways with a fund can be difficult, it’s essential to make decisions based on informed choices. As we enter a period of higher interest rates and potentially greater variability in returns, staying vigilant and adaptable is crucial.
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