Aberdeen, St James’s Place and Henderson are among fund groups with the highest number of ‘dog’ funds under management currently, according to Bestinvest’s latest ‘Spot the Dog’ report.
The latest report – dubbed “the guide fund managers would love to ban” – found a total of 34 dog funds compared to 41 at the start of the year, which is a 13 per cent decline.
The research, which is published and rebalanced bi-annually, attempts to seek out the consistently poor-performing equity funds; each ‘dog’ has to have underperformed its relevant benchmark for three 12-month periods in a row and by more than 5 per cent over three years in total.
Aberdeen Asset Management emerged as one of the worst offenders, with its funds accounting for 27 per cent of the assets under management by dog funds. Not only this, it has seen an increase in the number of dog funds since the start of the year and a rise in assets to more than £2bn; this is mostly due to repeat offender Aberdeen Asia Pacific Equity, which has assets under management of £1.3bn.
It is closely followed by St James’s Place, which holds three dog funds with a combined AUM of £1.67bn. Further down the list, Janus Henderson has two more dog funds compared with the start of the year as the Henderson Global Equity Income joined repeat offenders Henderson UK Growth and World Select.
Jupiter also holds four small dog funds and First State ranks in fifth place for its Global Resources fund.
Jason Hollands, managing director at Bestinvest, said: “Pleasingly just two funds are ‘big beasts’ with each having over a billion of assets, with most of the funds in it being pretty small in size.
“The overall drop in funds hitting our exacting criteria is also encouraging but it remains to be seen whether this is a technical blip or a sign of more meaningful trend coming through.”
When it comes to sectors, the list is once again entirely free from funds in the IA UK Smaller Companies funds and, while harbouring three ‘dog’ funds at the start of the year, the IA Global Emerging Markets sector has also avoided the dog house entirely.
There has also been a significant decline in the number of UK equity and Japanese dog funds, with each market area only harbouring one dog each.
In terms of the former, St. James’s Place Equity Income sits alone in the kennels, having returned just 13 per cent over the last three years.
Performance of fund vs index over 3yrs
Source: FE Analytics
The £1bn fund, which resides in the IA Unclassified sector, is managed by Nick Purves at RWC Partners. Purves adopts a deep value approach to investing and includes the likes of GlaxoSmithKline, RELX and Unilever in his list of top 10 holdings.
“Purves’s investment style focuses on identifying companies he believes are undervalued but this has sharply been out of favour with markets which have favoured quality growth companies in recent years,” the report reasoned.
“Performance has also been hurt by the fund’s high annual costs of 1.61 per cent, which is anything but ‘value’ investing.”
‘Pedigree picks’ from Bestinvest when it comes to UK equities include Evenlode Income, Liontrust Special Situations and JOHCM UK Dynamic.
Meanwhile, the only Japanese equity fund to have made the list is CF Canlife Japan, which is just £66m in size and is headed up by Duncan Mackay, who blends top-down macroeconomic views with individual stock selection to create his portfolio. The fund currently has 62 holdings with significant weightings in Toyota, Mitsubishi and Japan Tobacco.
Over three years, it has underperformed the Topix index by 11 per cent with a 43 per cent return. In contrast, Bestinvest’s pedigree picks include AXA Framlington Japan, CF Morant Wright Nippon Yield and Schroder Tokyo.
Meanwhile, both global sectors were flagged as the worst culprits in ‘Spot the Dog’, with a total of 17 funds being branded as dogs by Bestinvest – these account for a combined AUM of £3.7bn. US equities came second with a total of six funds, although this number has fallen by 33 per cent since the start of the year.
The worst global dog fund identified by Bestinvest was Neptune Global Income, having underperformed the index by 23 per cent over three years with a total return of 20 per cent.
The £6.7m fund is co-managed by George Boyd-Bowman and Robin Geffen, and aims to provide income and growth through a concentrated portfolio of stocks. These are chosen based on their ability to significantly grow their dividends.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
Other global funds finding themselves in the doghouse included Aberdeen World Equity Income, St James’s Place Ethical and Liontrust Global Income. Meanwhile, Lindsell Train Global Equity, Fundsmith Equity and Fidelity Global Dividend have been highlighted as ‘best of breeds’ within the sectors.
Over in the US, Jupiter US Small and Midcap Companies has been branded the weakest in the pack having underperformed the S&P 500 by 18 per cent with a 31 per cent return.
However, investors should note that the fund is benchmarked against the Russell 2000 – which it has still significantly underperformed over the last three years.
Next on the list is Henderson US Growth, which has underperformed the S&P 500 by 16 per cent over the last three years with a 45 per cent return.
The £252m fund has a concentrated portfolio of 36 holdings, which includes the likes of Adobe Systems, Fiserve and Microchip Technology as its largest constituents.
In contrast, Bestinvest’s pedigree picks in the sector include Loomis Sayles US Equity Leaders, T. Rowe Price US Smaller Companies Equity (which again has a different benchmark) and Dodge & Cox Worldwide US Stock.
In terms of European equities, a total of four dogs were spotted.
“In this edition the litter has now expanded to four funds with Aberdeen European Smaller Companies now joined by Allianz European Equity Income, Legg Mason IF Martin Currie European Equity Income and IFSL Trade Union Unit Trust,” the report stated.
“However, hope may be in sight for Aberdeen’s serial offender as the firm is in the process of merging with Standard Life, which has a somewhat better record in European smaller companies, so the wayward fund could find itself a candidate for being put out of its misery.”
Bestinvest’s worst offender with a 9 per cent underperformance relative to the MSCI Europe ex UK index was IFSL Trade Union Unit Trust, which has made 21 per cent over three years. However, the fund is benchmarked between a combination of the FTSE All Share and the MSCI Europe ex UK index (with a respective 60 and 40 per cent weighting to each). It has still underperformed this by more than 8 percentage points over the time frame.
Next on the list – which is benchmarked against the MSCI Europe ex UK index – was Legg Mason IF Martin Currie European Equity Income which is co-managed by Ross Watson and David Forsyth.
The £25m fund has a concentrated portfolio of 40 holdings and is unafraid to take punchy bets. For instance, its largest individual holding is Nestle SA which accounts for 7.25 per cent of the overall portfolio.
Over three years, it has underperformed its benchmark by 9 percentage points with a total return of 32.19 per cent.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
Bestinvest’s European pedigree picks include Jupiter European, Artemis European Opportunities and Threadneedle European Select.
Finally, in the Asia Pacific area of the equity market, the number of dogs has risen from one – the now-absent Newton Oriental fund – to five new entrants.
“The main howler here is now the £1.3bn Aberdeen Asia Pacific Equity fund, which has returned after a brief absence,” the report continued.
“This is disappointing as Asian equities have historically been a key franchise for Aberdeen, and the firm will be eager to put the spell of underperformance behind it as it completes its merger with Standard Life.”
While the fund has not suffered the biggest underperformance on the list, it has by far-and-away the largest amount of AUM at £1.3bn.
The Asian Equities team aim to provide long-term growth through a relatively concentrated portfolio, which currently stands at 57 stocks. Over three years, the fund has underperformed its benchmark by more than 12 percentage points with a total return of 35.51 per cent.
Pedigree picks in the sector include Invesco Perpetual Asian, Schroder Asian Alpha Plus and Stewart Investors Asia Pacific Leaders.