US Edition
Almost £50bn of investors’ money is languishing in poor-performing funds that are named and shamed today.
Twice a year the investment platform Bestinvest publishes its “Spot the Dog” report – revealing the funds that have consistently underperformed in each of the last three years and by 5pc over the entire period.
The country’s largest wealth manager, St James’s Place, had the highest number of “dog funds” in this latest edition.
Of the £46.2bn total held in the 56 poor performers, £29.3bn – or 63pc – was invested in six funds owned by the UK’s biggest wealth manager, which has more than 900,000 clients. Three of the St James’s funds were “Great Danes” – under-performers with more than £1bn invested.
The amount of investors’ money held in poorly performing funds has soared to £46.2bn, up from £19.1bn in the previous report, as larger funds fell behind their peers.
The biggest fund of them all was St James’s Place Global Quality, which holds £11.47bn of investors’ money and lagged its market index by 24pc.
Fees are a drag on investment returns, and the ongoing charges figure on St James’s Place Global Quality comes in at 1.8pc. Tom Beal, of St James’s Place, said it was important to note that this includes “the cost for the external fund manager, administration and advice”.
The report also found that even boutique investment firms are failing to beat their competitors on performance.
Lindsell Train – founded by star fund manager Nick Train – saw its North American Equity fund, launched in 2020, enter the doghouse this year. The fund underperformed by 14pc compared to its market index.
Jason Hollands, of Bestinvest, said the fund – which is not managed by Mr Train – had likely struggled because of its highly concentrated approach, with only around 30 stocks in its holdings.
“When you invest in funds run in that way, you can expect big deviations from the index (positive or negatively so),” said Mr Hollands.
Investors should note that the company’s flagship fund, Lindsell Train UK Equity, often features as a top-performing “pedigree pick” and does again this year.
Another fund punished for its more specialistic approach was the Baillie Gifford Global Discovery fund, which lagged its index by 70pc – making it the worst performer of the bunch.
An investor who put £100 into the fund three years ago would have seen their investment drop to £61 today. Bestinvest said its poor performance was unsurprising, given Global Discovery invests in small companies with a high-growth potential.
A Baillie Gifford spokesman said the recent period had posed “significant challenges” for its Global Discovery strategy, however, “we remain unwavering in our long-term growth-focused investment philosophy”.
Scottish Widows UK Growth, managed by Schroders, has made the list again and again throughout the report’s history.
The fund manager Artemis had £2.66bn in dog funds – the highest after St James’s Place – including the Artemis US Select fund, with £1.53bn in assets under management, which underperformed the index by 17pc.
Across the board, funds like the Artemis US Select fund suffered due to their lack of exposure to large tech stocks.
The recent gains in the US stock market have been driven by a handful of these mega-cap tech stocks, which have benefited from the hype around artificial intelligence.
A smaller weighting to these stocks has clearly taken its toll – hence why so many funds in the Global sector made it onto this report’s list.
An Artemis spokesman said: “The Artemis US Select Fund held shares in Apple, and other tech stocks during this period, but not to the same weight as the index. It typically holds a focused portfolio of 35-65 companies that the manager believes will deliver strong returns over the longer term – these include companies likely to be beneficiaries of the US government’s 10-year plan to invest $400bn in the transition to a low carbon world.
“It will therefore not mirror the performance of the S&P 500 – indeed, in the last quarter, to the end of June, it returned 10.4pc in sterling terms, against 5.8pc for the index.”
A Lindsell Train spokesman said: “The Lindsell Train North American Equity Fund aims to buy and hold high-quality, durable businesses for the long term.
“Our highly selective investment approach steers us away from big parts of the market, including highly valued growth stocks. When such companies are the driving force for the US market, the fund may go through periods of relative underperformance.”
A St James’s Place spokesman said: “We continually monitor, review, and update our investment proposition to make sure we’re delivering the right outcomes for our clients. In the past two years four of the funds mentioned have undergone a change in manager and performance benefits of these changes will take time to filter through.
“80pc of St James’s Place’s clients hold funds in a portfolio of funds, to help them meet their goals. Diversification is a key benefit of investing in a portfolio, giving a smoother exposure to the ups and downs of markets.”
Schroders was contacted for comment.