Invesco Perpetual, JP Morgan and Janus Henderson have topped the semi-annual Bestinvest ‘Spot the Dog’ report as the amount of assets in consistently underperforming funds rose to a record high of £33.6bn during the first half of the year.
For inclusion in the ‘Spot the Dog’ report, a fund must have underperformed the market for each of the past three years and by more than 5 per cent over the most recent three-year period to 30 June.
The rise in dog funds comes after a challenging start to the year for managers as trade-war fears, the withdrawal of quantitative easing and higher interest rates hindered markets.
The inclusion of five Invesco Perpetual funds – with assets of £15.1bn – is a marked turnaround in performance for the group, which did not feature in the previous edition.
Two of its most prominent strategies were named and shamed: the £9.2bn Invesco Perpetual High Income fund and the £4.3bn Invesco Perpetual Income fund, both managed by FE Alpha Manager Mark Barnett.
Performance of funds vs sector & benchmark over 3yrs
Source: FE Analytics
Over three years, Invesco Perpetual High Income has delivered a total return of 10.55 per cent while Invesco Perpetual Income is up by 7.75 per cent compared with a gain of 25.63 per cent for the average IA UK All Companies sector fund.
According to Bestinvest, the total size of Invesco funds in the list accounted for 45 per cent of assets in this edition.
Barnett’s Invesco Perpetual UK Strategic Income fund and Ciaron Mallon’s Invesco Perpetual Income & Growth fund also made the list. The other Invesco name included is Invesco Perpetual Japan, managed by Paul Chesson and Tony Roberts.
Joining Invesco at the top of the list is JP Morgan Asset Management, whose single entrant – Clare Hart and Jonathan Simon’s JPM US Equity Income fund – represents £3.5bn in assets.
“In our view this is down to the income-seeking strategy being out of favour with market trends,” reported Bestinvest, noting its low exposure to the so-called FAANG – Facebook, Amazon, Apple, Netflix and Google-parent Alphabet – stocks and other growth technology companies.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Over three years, the fund has delivered a total return of 66.71 per cent compared with a gain of 74.04 per cent for the S&P 500 benchmark, although it has outperformed the IA North America sector’s 64.85 per cent return.
Janus Henderson’s top position in the list was due to the inclusion of two portfolios: John Bennett’s £2.2bn Janus Henderson European Selected Opportunities fund and the smaller £119.7m Janus Henderson World Select fund.
Like Invesco, Aberdeen Standard Investment also has five funds – representing £1.9bn in assets – on the list, all but one of which is a new entrant. The largest of these is the £851.2m Aberdeen Asia Pacific Equity strategy, while the £313.6m Aberdeen World Equity portfolio also features.
Fidelity International rounds out the top five, with five funds managing assets worth a total value of £1.8bn. These include Hiroyuki Ito’s £47.3m Fidelity Japan fund, Angel Agudo’s £948.1m Fidelity American Special Situations fund, and the £576m Fidelity Moneybuilder Growth fund managed by James Griffin.
The global equities sector remains home to the most ‘dog’ funds, although the number of UK equity strategies has also risen sharply.
According to Bestinvest, 10 per cent of funds from the IA Global and IA Global Equity Income sectors – 19 in total – were included in the ‘Spot the Dog’ list at the end of June, representing assets of £2.7bn. However, almost half of the global ‘dog’ funds have an income objective.
There was a surge in the number of UK equity funds – from the IA UK All Companies and IA UK Equity Income sectors – rising from just two at the start of the year to 18.
Again, income-focused funds dominated, which Bestinvest said reflected a more challenging environment for managers in this area, with the firm again noting the dominance of growth stocks in recent years.
Performance of sectors vs FTSE All Share over 3yrs
Source: FE Analytics
Conversely, the report featured no global emerging market ‘dog’ funds, which Bestinvest said could become an “extinct breed” along with the UK smaller companies sector which saw just one fund – the £401.5m Majedie UK Smaller Companies portfolio, overseen by Richard Staveley – making the latest edition.
Another area where there has been an improvement is the US equity sector, according to Bestinvest, where traditionally it has been hard for active managers to outperform the market. However, the firm has noted that there are now fewer funds on the list as managers have improved performance. 
Jason Hollands (pictured), managing director at Bestinvest, said that while the previous edition had highlighted a significant drop in numbers, it had not proved to be a sustainable trend.
He said: “In reality there are numerous reasons why a fund might hit a period of relative underperformance and so it is important to delve deeper before deciding to switch and move your cash elsewhere.
“In some cases, bad decision-making is at fault, and the case to move on makes sense, but in others a previously sound investment process or an agreed mandate may be out of favour with recent market trends, in which case some patience is required.”
Hollands added: “For example, some of the global and US funds listed in this edition have income generation as part of their objectives and this has led them to be underweight the fashionable ‘growth’ stocks that have performed particularly well in recent years, but where dividends are low or non-existent.”
The full Spot the Dog report can be downloaded for free at www.bestinvest.co.uk/dogs.