M&G Recovery and Aberdeen Asia Pacific Equity are some of the high-profile funds that have been included in Tilney Bestinvest’s latest Spot the Dog report, which has seen a significant increase in the number of portfolios flagged for recent underperformance.
The biannual report, which highlights the funds that have underperformed an appropriate benchmark for three consecutive years and by more than 10 per cent over the period in question, now features 54 funds – a jump of 46 per cent on the 37 products being “named and shamed” in August 2015.
Jason Hollands, managing director at Tilney Bestinvest, said: “Spot the Dog is a reminder that not all investments turn out to be a resounding success – to put it politely – and a few can turn out to be disastrous.”
“It is imperative to keep a close eye on your portfolio, periodically giving your investments a review. Do not assume that going with a big brand fund group is any guarantee of healthy returns – it isn’t. Even funds that were once very successful and popular with professional advisers can go off seriously off the boil.”
When the list is looked at from an assets under management point of view, M&G Investments has the strongest presence after funds running a collective £6.4bn were named as ‘dogs’.
The largest of these is the flagship M&G Recovery fund, which has assets of £3.7bn and has been managed by Tom Dobell since March 2000.
Over three years, the fund has posted a 12.50 per cent loss compared with an 8.56 per cent total return in the FTSE All Share. It is also ranked 258 out of the 259 funds in the IA UK All Companies sector, where the average gain has been 18.71 per cent.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
The fund’s run of underperformance (it’s also bottom quartile over five and 10 years) has been discussed at length on several occasions, with Dobell pointing out that the deep value style of investing on which the portfolio is built has been out of favour for much of the post-financial crisis era.
Tilney Bestinvest said: “Once again, Prudential-owned M&G retains its place at the top of the table for ‘dog fund’ assets under management with £6.4bn in the kennel, in the main represented by the same former flagship funds that look more like oil tankers – M&G Recovery and M&G Global Basics.”
“In this edition, they have been joined by the North American Dividend fund (a repeat offender if taken under its previous guise, the M&G American fund) and the Global Recovery fund. In part, M&G has responded by experimenting with portfolio management and/or mandate changes in a bid to turn around performance or reposition funds.”
With four funds on the list, M&G Investments is beaten only by Aberdeen Asset Management – although that fund house is home to 11 ‘dogs’ with combined assets under management of just over £3bn.
One of the most high-profile to fall onto the list is Aberdeen Asia Pacific Equity, which is managed by veteran investor Hugh Young and his Singapore-based team. The fund has underperformed the average member of the IA Asia Pacific ex Japan sector and its MSCI AC Asia ex Japan benchmark after losing 17.33 per cent over three years.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
However, the fund remains a member of the FE Invest Approved list. The FE Research team points out that the process behind the portfolio is very long term in nature and can lag the market over short-term periods – a view shared by many fund analysts.
Other Aberdeen funds highlighted by Tilney Bestinvest include Aberdeen World Equity, Aberdeen UK Equity and Aberdeen European Equity. However, there are also three ‘dog’ funds it runs for Scottish Widows, two for Halifax, one for TU Fund Managers and one for St. James’s Place – taking its real total to 18 persistent underperformers.
“A time traveller from 2010 would be surprised to see Aberdeen so prominent in Spot the Dog. Back then, its Asia and emerging markets products were top performers and Asia fund manager Hugh Young’s investment process was being rolled out across the whole business to replicate this success,” Tilney Bestinvest said.
“Today it’s a different story. The Asia and emerging markets funds have lost their lustre and the common process means the malaise has spread across the group, which has no less than 11 of its funds barking their way into our guide.”
“However, the real picture is even worse, as Aberdeen is also the underlying manager of seven other funds in the report, meaning its investment teams are running the portfolios on a third of funds in this edition. A strong house process can be an advantage, but too much commonality can take away the individual flair with which fund managers add value.”
However, the report does include some good news.
Fund houses mentioned for not having a single ‘dog’ in their line-up include AXA, Artemis, Baillie Gifford, Baring, BlackRock, Columbia Threadneedle, First State, Henderson, Invesco Perpetual, JO Hambro CM, JP Morgan, Liontrust, Man GLG, Neptune, Old Mutual, Royal London, and Standard Life Investments.
UK funds were also highlighted for the relatively small number of persistent underperformers in the IA UK All Companies and UK Equity Income sectors, where only eight out of 246 found themselves on the list.
The fund leading the UK space under the Spot the Dog methodology is Thomas Moore’s Standard Life Investments UK Equity Income Unconstrained. This has made 40.89 per cent in the past three years, outperforming its average peer and the FTSE All Share by a wide margin.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
The five FE Crown-rated fund is held in high regard by investment analysts, appearing on the FE Invest Approved list for its strong outperformance over recent years and winning an A rating from Square Mile for its “truly” actively managed strategy.
Other consistent UK outperformers highlighted in the Spot the Dog report include Unicorn UK Income, Invesco Perpetual High Income and Old Mutual UK Equity Income.
