It is crucial to identify ongoing poor performance because over the long-term the negative effects of investing in bad funds can have a significant impact on an entire portfolio – even if other holdings are doing well. 

Bestinvest stresses that not every dog fund – defined as one that has underperformed its benchmark in each of the last three years and by 10 per cent or more over the cumulative period – should be sold automatically.

However, if the management is doing little to address underperformance, investors would be wise to reconsider a dog fund's position in their portfolio. 


Global

IMA Global is among the best-selling equity sectors with UK investors, but be warned; almost one-third of portfolios in the sector are dogs. 

Funds with little exposure to the S&P 500, which has risen by 51 per cent in the last three years, have done particularly badly. 

However, while Bestinvest says this goes some way to justifying underperformance for many funds, the firm claims others have no such excuse. 

The £68m Martin Currie Global Alpha portfolio makes its fourth appearance in a row; according to FE data, it is up 14.81 per cent over three years, compared with gains of 31.03 per cent from its MSCI AC World index. 

Performance of fund vs benchmark over 3-yrs



Source: FE Analytics

Martin Currie Global, another past offender, only escapes this time because the group closed the fund in February.

Aside from being underweight the US, the biggest recurring trend among Global dog funds is their focus on sustainability: Jupiter Ecology, WHEB Sustainability, Allianz Global EcoTrends and Schroder Global Climate Change have all been named and shamed by Bestinvest.

The four funds have combined assets under management (AUM) of £392m. 


North America

US funds have experienced a particularly sharp fall from grace in the latest rebalancing of the Spot the Dog study. In the last edition back in February this year, no funds in the IMA North America sector made it on to the list.

However, 23 of the 61 portfolios in the sector – or 38 per cent – are now defined as dog funds, which is the biggest proportion of any sector taking part in the study.  

The well-researched US is traditionally a difficult market to add value to. While there are various reasons why North American funds have struggled of late, including the impact of ETF inflows on markets and the preference for US small caps, Bestinvest says some UK-based managers are clearly out of touch with this particular market. 

The list of dog funds is littered with big-name houses; the likes of Investec American, Neptune US Opportunities, Legg Mason US Equity, Aberdeen American Equity and Invesco Perpetual US Equity are all included.

All of these have underperformed the S&P 500 by at least 15 per cent over three years. 


Europe

Despite a difficult three years for European fund managers, only eight funds from the sector have been classed as dogs in the latest rebalancing. The most notable of these is Rob Burnett’s £812m Neptune European Opportunities fund. 

"Burnett has established a good medium-term track record since he started managing the fund in 2005, but after two years of slight underperformance, the past 12 months have not gone well as he has failed to successfully navigate the volatile markets by seeking to profit from the various inflection points,” said a spokesperson from Bestinvest. 

Other funds on the list of eight include Scottish Widows European Growth, L&G European and the £111m M&G European Strategic Value portfolio. 


Japan

Only one Japanese fund is in the dog pound on this occasion – the £101m Neptune Japan Opportunities portfolio, which is headed up by Chris Taylor. 

It is still a top-quartile performer over a five-year period with returns of 32.3 per cent, thanks to stellar performance in 2008 and 2009.

However, in the last three years Taylor has struggled significantly, falling short of his Topix benchmark by 35.71 per cent. 

Performance of fund vs sector and benchmark



Source: FE Analytics

Bestinvest said that the use of derivatives, which saw the fund perform well in 2008, has now come back to haunt it. 

"Its exceptional performance during the Lehman crisis was because of a short on the index, and now it is a subsequent short on the yen that largely accounts for its inclusion in the dog house," a spokesperson explained.