The £10.8 billion in total assets handled by so-called “dog funds” are owned by UK funds, which account for more than 70% of the total.
In Bestinvest’s Spot the Dog reports, published twice a year, dog funds are defined as regularly underperforming investment funds.
A fund must have underperformed the market it invests in by 5% or more to be included on the list over three years.
Another requirement is that the fund must have underperformed three consecutive 12-month periods in a row.
Resources in the UK The £10.8 billion total amount of assets under management includes £7.6 billion from the All Companies and UK Equity Income sectors.
Over the previous three years, the London stock market has held up reasonably well. However, the UK market’s stability is attributed to a select few sectors, according to Bestinvest.
In any of the circumstances encountered over the previous three years, “there are funds whose strategy has not performed effectively,” Bestinvest said.
The fact that UK investors have a propensity for favouring their native country should be noted. According to research from Quilter Investors from the previous year, Sixty-three per cent of those with at least £60,000 in investable assets and more than 25% of their portfolio invested in the UK.
Comparatively, the number of global equity income funds in the list has decreased from 14 the previous time to 0.
The two funds with the worst performances on the February 2022 list were the Janus Henderson global equity income fund and the US equity income fund of JP Morgan.
Bestinvest attributes the improvement in global equity income funds to their mandates. They mandate modest weights for growth stocks and the broader US market.
“That had been a hindrance until recently but has taken them out of the doghouse thanks to stronger performance among value and dividend-paying companies in the last several months,” Bestinvest noted.
The global sector provided 10 of the 31 canines even if international equity income funds were removed from the list. It was the industry where this edition’s lowest performers were found.
Since February, there are now 31 fewer dog funds, down from 86. Assets owned by these funds have decreased from £45.4 billion to £10.7 billion.
This time around, the selection technique used by Bestinvest can be the reason for the comparatively few dogs.
“While there are regrettably many funds that have undershot the markets they invested in over the last three years, a change in fortune for funds investing in undervalued firms and dividend-paying shares means many of the funds that dominated the list in recent editions have escaped this time due to a significantly stronger relative performance in the last few months,” according to Bestinvest.
Sectors including energy, commodities, consumer staples, and healthcare have significantly better performance than ‘growth’ sectors like technology, communications services, and consumer discretionary industries that previously generated excellent returns. This is due to the surge in inflation, rising borrowing rates, and the crisis in Ukraine.
The statement said, “Many of the growth-oriented funds that have struggled in the most recent year are prevented off the list by their excellent performance in the preceding two years.
“While it may appear positive for private investors that fewer funds are getting a dog tag during this transitory and challenging time for the global markets, important questions must be asked of those funds that nonetheless made a list. Under several different market circumstances, they have been unable to surpass the benchmarks employed.