Invesco once again tops the list of asset managers with the most held in so-called ‘dog funds’ while Woodford’s retains second place, according to Bestinvest’s semi-annual ‘Spot the Dog’ report, although the amount held in such funds has fallen off significantly.
In the latest edition of ‘Spot the Dog’, Bestinvest identified 59 funds that meet its dog fund criteria, down on January’s record-breaking 111 funds. As such the amount held in dog funds has fallen from £54.6bn in January to £32.6bn in June.
The decline is largely due to a sharp reduction in the number of UK equity funds down from 59 to 20 and a fall in assets from £35.9bn to £20.5bn. However, this is not necessarily a sign of recent improvement in performance, Bestinvest noted, adding that the lead-up to the Brexit referendum had dropped out of its latest period of analysis.
The study aims to identify funds that have underperformed a representative benchmark for three consecutive 12-month periods. A second filter identifies funds that have underperformed the benchmark by 5 per cent over a three-year period.
The fall in dog fund assets comes after a much stronger six months than was experienced prior to the previous ‘Spot the Dog’ report, as the MSCI World index returned 46.64 per cent, compared with 39.02 per cent at the end of the year.
As in the previous two semi-annual studies, the worst performing group was Invesco, which had six funds in the ‘doghouse’ with around £11bn in assets.
Source: Bestinvest
“The company has more than £11bn of assets spread across six dog funds, ranging from the miniature Invesco European Opportunities to the gargantuan Invesco High Income – this repeat offender is yet again the biggest dog in the pound,” noted Bestinvest.
“It is run by UK equity manager Mark Barnett, who has had a torrid time in recent years with his ‘value’ investment style deeply out of fashion.”
Barnett is a protégé of Neil Woodford whose Woodford Investment Management retained its position in second place thanks to its flagship UK equity income fund. The fund was gated in June as poor performance, outflows and concerns over illiquid holdings.
“The fund has performed consistently badly in recent years and has seen massive outflows from investors,” the firm wrote. “Woodford has been forced to sell his more liquid holdings to pay investors, leaving a portfolio that is skewed towards smaller, illiquid companies – a far cry from the funds he ran at Invesco.”
As noted, there was a significant drop-off in the number of UK equity ‘dog funds’ which was reflected by a fall in funds from the IA UK All Companies sector.
After registering 32 ‘dog funds’ in the last edition that number has now fallen to just 11, with the amount held in such strategies falling from £27.4bn to £16.7bn.
Against a Brexit backdrop, UK managers have struggled to deliver growth, forcing them lower down the market cap scale, although here too political uncertainty has struck.
Bestinvest noted that the sector was dominated by “three big beasts” in Mark Barnett’s Invesco Income and Invesco high Income and Neil Woodford’s Woodford Equity Income.
Performance of funds over 3yrs
Source: FE Analytics
It is a similar situation in the IA UK Equity Income sector, where 25 ‘dogs’ at the last showing and £8.1bn in assets has fallen nine funds with £3.7bn in assets, although this still represents 13 per cent of the sector total – the joint highest.
However, it is another fund where – until recently – Woodford was at the helm that dominates: St James’s Place High Income.
Woodford has now been replaced by Columbia Threadneedle’s Richard Colwell and RWC Partners’ Nick Purves.
There were no UK smaller companies strategies making the latest edition of ‘Spot the Dog’.
Along with UK equity income, the sector with the highest proportion of ‘dog funds’ in this edition was the European equity sector, which also had 13 per cent of its funds in the kennel.
The report found 11 ‘dog funds’, although this was down from 18 earlier this year, representing assets worth £5.2bn.
According to Bestinvest, many of the culprits are equity income strategies which have lagged the index in favour of low-yielding growth stocks.
Alongside the previously mentioned Invesco European Opportunities funds are sector giants Janus Henderson European Selected Opportunities and BlackRock Continental European Income.
The IA Global sector saw a significant decline in the number of ‘dog funds’ and the amount in assets held in them during the previous six months.
Just 15 ‘dogs’ were identified by Bestinvest this time around down from 20, while assets fell from £9.6bn to just over £4bn.
As in the European sector, there were a number of equity income strategies seen, these tend to have less exposure to US names because of the lower yield and missing out on more of the high-growth technology stocks.
Among the largest names in the kennel are Janus Henderson Global Equity Income, UBS Global Enhanced Equity Income and LF Canlife Global Equity.
The amount held in North American ‘dog funds’ halved despite the market’s notoriously reputation for being difficult to bear.
Just 5 per cent of funds in the North American equity universe were identified as dogs by Bestinvest, with just three funds making the list although a similar amount was held in these funds £1.1bn, as the £910m Fidelity American Special Situations – overseen by Angel Agudo – remains in the dog house.
Performance of fund vs benchmark over 3yrs
Source: FE Analytics
Other North American dogs include LF Canlife North American and Standard Life American Equity Income.
Despite the ongoing US-China trade dispute, emerging market funds have recorded strong performance over the past six months. Just two funds made the list this time round down from five last time, with assets falling from £1.8bn to £1.1bn.
The two are Edward Lam’s MI Somerset Emerging Markets Dividend Growth strategy and the Janus Henderson Emerging Markets Opportunities overseen by Stephen Deane.
There was a slight increase in the Asian Pacific ‘dog funds’ however with five making the list this time around, albeit with just £385m in assets spread across “five miniature funds”, the largest of which is the £123.4m Jupiter China fund.
And finally, Japanese funds have returned to the list after a “brief hiatus”, with three funds – Aberdeen Japan Equity, Invesco Japan and LF Canlife Japan – all making the list.
For a copy of the report visit https://www.bestinvest.co.uk/research/spot-the-dog.