Bestinvest’s 2012 dog funds revealed
The advisory firm has named and shamed the funds that have underperformed their benchmark by at least 10 per cent over the last three consecutive years.
By Lora Coventry, Senior Reporter, FE Trustnet
Tuesday February 21, 2012
More than £9bn of retail investors’ money is held in underperforming funds, according to the latest Spot the Dog study from Bestinvest.
, Scottish Widows/SWIP
are among the worst offenders for having assets under management in underperforming funds.
The £9.24bn is a sharp fall from last year’s £23.78bn figure.
"One of the reasons we think this big fall has happened is that there’s been a big period of volatility. Fund managers have actually been able to benefit from volatility, so they’ve had a year of grace," Bestinvest’s senior investment adviser Adrian Lowcock explained.
Scottish Widows/SWIP is the worst offender this year, with £2.28bn of its assets under management in dog funds, up from £2.1bn last year. This represents a quarter of all the AUM invested in dog funds.
"SWIP has taken steps to address the performance of the funds mentioned in this survey," said a spokeswoman for the group. "We are encouraged that changes we have made to date have led to a reduction in the number of our funds included in [Spot the Dog]."
She also pointed out that the SWIP funds included in the survey represent less than 2 per cent of the group's total AUM.
"They’ve actually got fewer funds in the dog list this year, and their sectors are different. Historically they’ve appeared in the emerging markets sector, while this year it’s mainly UK with one global fund. It’ll be interesting to see if they can turn this performance around. It appears they may have done this with emerging markets," Lowcock added.
M&G is second in the list, up from sixth in last year’s rankings, with M&G Dividend
responsible for the rise; the fund makes up 6 per cent of M&G’s AUM. A spokeswoman for M&G defended the fund’s performance.
"Alex Odd was appointed fund manager of the M&G Dividend fund in June 2010. Following his appointment, the fund’s objective was changed to focus on growing dividends for investors rather than a specific yield relative target."
"This has several potential benefits. It broadens the investment universe, gives him a greater ability to focus on long-term dividend growth and means there is the potential for greater diversification across sectors, reducing the degree of risk," she said.
Schroders is the third-worst offender, with Andy Brough’s Schroder UK Mid 250
dragging it down. It is the fifth consecutive dog listing for Brough, whose fund has shrunk from a high of £1.6bn to £1.17bn.
"We’ve seen a big drop in the amount of money in this fund – around a 27 per cent fall," Lowcock continued.
"That is not entirely attributed to poor performance. That looks like there’s money flowing out of the fund as well. We think investors are starting to pay attention to the poor performance there. It signifies how much poor performance needs to happen before investors act. We think investors should be acting sooner."
Brough defended his record, saying returns have picked up recently and that the fund is a top-quartile fund over the past three months.
"The fund is now full of very cheap stocks and I am convinced it will be back to its winning ways this year. While crude market declines can seem unsettling, they do not affect the long-term attractiveness of our chosen businesses," he explained.
"Price weakness also presents attractive opportunities to invest in companies at a discount relative to their long-term potential."
"We have experienced volatile markets before but long-term performance over 10 years remains exceptional."
Schroders pointed out that the Spot the Dog report highlights two Schroders funds as being "best of breed" – the Schroder European Alpha Plus
and Schroder Tokyo
in the European and Japanese categories respectively.
Two sectors that don't have any dogs are IMA Global Emerging Markets
and IMA North America
"Emerging markets is a very concentrated sector and there have been some good managers in there. The US is interesting because, while there are no bad managers running dog funds, the sector struggles for not having any good managers," Lowcock finished.