Bestinvest defines a "dog" as a fund that has failed to beat its benchmark over three consecutive 12-month periods. They must have also underperformed their benchmark by 10 per cent or more over the entire three-year period of analysis.
The survey revealed that there are 49 funds – representing £19.55bn – that can be classified as “dogs”, compared with 53 from the previous list.
Just like in the last survey, the IMA Global sector has the highest proportion of dogs, with 20 funds from the sector making it on to the list.
Although a slightly lower figure than last time around, funds from the IMA North America sector still account for 13 per cent of this year’s dogs.
Bestinvest’s Jason Hollands says it is only natural for active managers to go through periods of underperformance, but that it is important that investors keep a close eye on their portfolios to make sure that they aren’t exposed to any dogs.“The reality is that the financial services industry often over-promises and under-delivers,” Hollands (pictured) said.
“Funds are heavily promoted when they are doing well, but over the long-term most fail to beat their benchmark. Surprisingly, many investors still put up with weak or pedestrian performance by either not monitoring their investments regularly, receiving poor service from the adviser who originally recommended the investment or through simple inertia.”
He added: “It is a problem likely to grow as greater numbers of investors are going it alone and choosing to invest without advice.”
Here we look at a selection of the worst performers in the various sectors, according to Bestinvest’s survey.
IMA UK All Companies
No funds from the IMA UK Equity Income sector made it onto the Spot the Dog list, however eight portfolios from the IMA UK All Companies sector did.
The largest and highest profile of these is Tom Dobell’s £6.7bn M&G Recovery fund. It has been the ninth-worst performing portfolio in the sector over three years, with returns of 11.86 per cent, having failed to beat its peers in each of the last three calendar years.
This means it has underperformed against the sector average and the FTSE All Share by around 20 percentage points over the cumulative period.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
Dobell apologised to investors about the poor performance last year and attributed the lacklustre returns to stock-specific issues. However, the fund sits in the bottom quartile in 2014.
Despite its tough time over the last few years, M&G Recovery has been a top quartile performer since Dobell took over the portfolio in March 2000. It has returned 151.69 per cent over this time, with Dobell beating the sector in each of his first 10 calendar years as manager.
SWIP UK Opportunities, F&C UK Alpha, Marlborough UK Primary Opportunities and Halifax Special Situations are among the other dogs in the sector.
There are also a number of dogs in the IMA UK Smaller Companies sector such as SF Webb Capital Smaller Companies Growth, JPM UK Smaller Companies and Ignis UK Smaller Companies.
However, the most notable name on the list is FE Alpha Manager Harry Nimmo's Standard Life UK Smaller Companies fund.
Nimmo is one of the longest-serving and most respected managers in the sector. His fund has also been one of the best performers since its launch in 1997.
It has struggled relative to the sector over recent years, falling into the third quartile in 2011, 2012 and 2013.
Standard Life UK Smaller Companies is bottom quartile in 2014, and as FE Trustnet highlighted last month, there are a number of stock-specific issues that have contributed to its losses this year.
One stock that certainly hurt performance was ASOS, which has fallen 50 per cent.
It was a top-10 position in the fund, but Nimmo has since sold his holding in the online retailer.
IMA Global
The IMA Global sector is home to the highest proportion of dogs in this year’s survey and there are a number of high-profile funds that have entered the list.
One example is M&G Global Basics, which Randeep Somel took over from long-serving manager Graham French in November last year.
While the £3.1bn fund is a top-quartile performer over 10 years, it sits in the bottom quartile over one, three and five years, following bottom-quartile returns in 2011, 2012 and 2013. It is currently third quartile in 2014.
Performance of fund vs sector over 5yrs
Source: FE Analytics
The fund aims to invest in the building blocks of an economy and therefore offers high exposure to emerging markets and commodity-related equities, two areas that have been out of favour in recent years.
Its most like-for-like equivalent in the sector is JM Finn Global Opportunities, which Bestinvest also rates as a dog.
It has underperformed the sector in each of the last three calendar years and is bottom quartile so far in 2014.
Ethical funds are well represented on the list, with Aberdeen Ethical World Equity, Ecclesiastical Amity International and St James’s Place Ethical all being named as dogs.
Other dogs in the sector include Neptune Global Special Situations, L&G Global Growth and Baring Global Growth.
IMA North America
The US equity market is renowned as being a very difficult place for active managers to add value, as the largest companies within the S&P 500 are so well-researched.
While some managers have been able to regularly outperform, according to Bestinvest, there are eight funds in the IMA North America sector that have entered the dog list.
The largest of these is the £924m M&G American fund, which is headed up by Aled Smith.
Our data shows that it has underperformed against its benchmark – the S&P 500 – in each of the three discrete calendar years and is down against the index in 2014.
The fund has returned 33.90 per cent over three years, while the index and sector have returned 46.89 per cent and 40.86 per cent respectively.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
The other funds to feature on the list include Investec American, Cavendish North American, Melchior North American Equities, Allianz US Equity, L&G North American and Psigma American.
