With volatile markets amid fears of a stock market crash, investors may be wondering where to invest their stocks and shares ISA allowance. But, before you do that, it’s worthwhile spring cleaning your ISA and self-invested personal pension (SIPP) portfolios to identify any serial underperformers.
Bestinvest has released their annual ‘Spot the Dog’ awards, to name and shame the worst-performing funds. They report that a massive £45 billion is invested in 86 ‘dog’ funds. So, are any of your ISA funds on the list?
[top_pitch]
What are ‘dog’ funds?
Bestinvest applies two criteria to identify dog funds:
- Failing to beat their benchmark over three consecutive 12-month periods
- Underperforming the benchmark by at least 5% over the three-year period.
Dog funds can make a serious dent in your portfolio returns. In 2021, the top global fund increased by 48% and the worst decreased by 21%, according to Trustnet.
Which fund managers were in the doghouse?
According to Bestinvest, the fund managers with the highest number of dog funds were:
|
Group |
Number of dogs |
Value of dogs (£bn) |
|
HBOS |
3 |
6.1 |
|
St James’s Place |
6 |
5.7 |
|
Invesco |
4 |
5.0 |
|
JPMorgan |
1 |
3.9 |
|
Fidelity |
3 |
3.7 |
The top three dog fund groups remained the same in 2021. HBOS retained its top spot, while St James’s Place leapfrogged Invesco to take second place. JPMorgan was a surprise entry at number 4, having been forty-sixth in 2020.
Over a third of dog funds were found in the Global Equity Income sector, followed by Europe (13%), UK Equity Income (13%) and Global (14%).
Which were the worst dog funds in the UK?
These were the worst-performing funds in the UK All Companies and Equity Income sectors, according to Bestinvest:
|
Fund |
3-year return* (%) |
3-year return on £100 (£) |
|
LF ASI Income Focus |
-40 |
84 |
|
Invesco UK Equity High Income |
-29 |
96 |
|
Invesco UK Equity Income |
-26 |
98 |
|
MI Sterling Select Companies |
-21 |
121 |
|
BMO UK Mid-Cap |
-19 |
123 |
|
BNY Mellon Equity Income Booster |
-17 |
108 |
|
Schroder UK Equity |
-16 |
108 |
|
BNY Mellon Equity Income |
-16 |
108 |
|
Halifax UK Equity Income |
-12 |
113 |
|
Scottish Widows UK Equity Income |
-11 |
114 |
*versus benchmark
So, what can we learn from this list? Three funds – LF ASI Income Focus and Invesco’s UK Equity Income and UK Equity High Income – would have delivered an overall loss over three years. The other dog funds achieved positive, although unexciting, returns.
UK income-based funds had a tough year, not helped by the impact of the pandemic on dividend strategies. Even the top-performing fund, Threadneedle UK Equity Income, only turned £100 into £135 over three years.
The UK All Companies sector also continued to be unpopular amongst investors in 2021. They were instead attracted to high-growth US technology stocks. Large-cap UK stocks in unexciting sectors such as oil, banking and mining suffered in comparison.
And the global dog funds?
All of the global dog funds delivered positive three-year returns and largely made considerably higher returns than the UK dog funds.
|
Fund |
3-year return* (%) |
3-year return on £100 (£) |
|
Kennox Strategic Value |
-67 |
103 |
|
Jupiter Global Value Equity |
-43 |
121 |
|
Quilter Investors Global Unconstrained Equity |
-38 |
126 |
|
NFU Mutual Global Growth |
-38 |
134 |
|
St James’s Place Global Smaller Companies |
-38 |
132 |
|
Ninety One Global Special Situations |
-37 |
127 |
|
UBS MSCI World Minimum Volatility Index |
-33 |
136 |
|
VT Avastra Global Equity |
-32 |
137 |
|
M&G Global Strategic Value |
-27 |
137 |
|
Jupiter Merlin Worldwide Portfolio |
-25 |
145 |
*versus benchmark
The outperformance of US technology stocks has presented a challenge for global fund managers in terms of trying to maintain a balanced portfolio. Many of the dog funds were invested in more defensive stocks, often outside the US.
It therefore comes as no surprise that Bestinvest’s ‘pedigree picks’ were heavily invested in US technology stocks. Top of the list was Scottish Mortgage Investment Trust, turning £100 into £290 over three years. Not far behind were AMP Capital Global Companies and Edinburgh Worldwide, also doubling investors’ money.
[middle_pitch]
Should you sell your dog funds?
It’s important to differentiate between sector and fund underperformance. While the US has driven impressive returns for funds, 2022 has already seen a partial exodus from US tech stocks. The Equity Income sector may benefit from investors moving into ‘safer’ defensive stocks with fears of a global recession. So the dog funds in one sector could well outperform the top-performing funds in another.
In terms of fund rather than sector performance, I’d suggest comparing your funds against their peer group. If they’re consistently bottom-quartile performers over a three- to five-year period, then it’s probably time to look at other funds.
Platform costs can also make a big difference to your returns over time. Take a look at our list of top-rated stocks and shares ISA providers to help with this. Also, take a look at our brokerage calculator that analyses the lowest-cost ISA provider based on your investment portfolio.
