More ‘actively managed’ investment funds – run by so-called experts rather than computers – are failing investors than ever before, according to a report published this weekend by analyst Bestinvest.
The fund scrutineer, part of wealth manager Tilney, says an ‘incredible’ 150 investment funds – one in six of all funds scrutinised – have consistently underperformed markets over the past three years.
This, it says, represents a staggering 65 per cent increase on the number of underachievers identified six months ago – and is a record since Bestinvest first started issuing its ‘spot the dog’ report on poor fund performance 25 years ago.
Failing: An ‘incredible’ 150 investment funds – one in six of all funds scrutinised – have consistently underperformed markets over the past three years.
Between them, the 150 funds manage investors’ assets of more than £54billion. Over the three-year period scrutinised, some of them have registered frightening losses in excess of 30 per cent (see table). In many instances, relative under-performance, compared to their stock market benchmark, is in excess of 20 per cent.
Not only have these funds under-performed over the past three years, but also on a consistent basis – in each of the three years covered by the analysis. Although the report says some of the so-called ‘dog’ funds are a victim of their particular investment style, others are ‘perennial’ under-performers.
They include the £1.3billion M&G Recovery fund and the £1.4billion Invesco UK Equity Income that until recently was known as Invesco Income. The worst performing fund, in both absolute and relative terms, is the £167million ASI Income Focus that was previously Woodford Income Focus and run by failed manager Neil Woodford. It is now managed by Aberdeen Standard Investments.
Jason Hollands, a director of Tilney, says the speed at which the value of investments plummeted in March will have ‘shocked many investors’. Although he says few investment funds escaped the stock market carnage, there were ‘wide disparities in performance between the best and worst funds’.
He adds: ‘It’s important that investors take a close look at what they are invested in and decide whether the holdings are right for them. You can’t change the past but you can make sure your portfolio is as well positioned as possible for the future.’ Bestinvest’s report comes as the City regulator looks to ensure investment managers provide investors with greater value for money.
Fund management groups are now required to carry out annual ‘value assessments’ of the investment funds available to the public. The idea of the assessments, which must be published online, is for investment houses to identify potential areas of investor detriment and address them.
These can include poor performance and some investors being penalised for holding money in a share class that carries onerous ongoing charges.
A minority of investment companies have responded to these reports. But the regulator is understood to be disappointed at the lackadaisical approach of some management groups. It is now looking to see whether it can ratchet up the pressure on fund groups – including the possibility of fines for those that fail to do more to provide investors with value for money.
Although the focus of Bestinvest’s report is on ‘dog’ funds, it also identifies those funds that have consistently performed well over the past three years. Groups with no ‘dog’ funds include Aviva, Baillie Gifford, BlackRock, Evenlode, Fundsmith, JO Hambro Capital Management, Lindsell Train and Stewart Investors.
The 24-page report can be downloaded at www.bestinvest.co.uk/ spot-the-dog.