The number of funds that have consistently underperformed in the markets they invest in this year has risen by a third, new data has shown.
Bestinvest’s Spot the Dog report, which has been exposing badly performing funds since it launched in 1994, named 119 market investment funds in its latest report, collectively representing £49.6bn ($69.5bn) in customer’s long-term savings.
The research, which is released biannually, uses statistical fund performance data to identify funds that have performed badly compared to their benchmark.
To be included, a fund must meet certain criteria, including delivering a worse return than the market it invests in for each one of the last three 12-month periods in a row. Secondly, it must also have underperformed the market it invests in by more than 5% over the entire three year period under review.
At least 15 funds on the list are managed by some of the financial services industry’s biggest names, each holding more than a billion pounds of investors' cash.
Fund giant Invesco (IVZ) retained the “top dog” spot for the sixth time in a row, with 11 funds worth £9.2bn of assets.
The report covers funds investing across a wide selection of markets, including the UK, global equities, North America, Europe, Asia (excluding Japan), Japan and Global Emerging Markets.
The highest count of consistent underachievers was found in the global equities sector, while North America had a prolific number of dog funds at 21.
Jason Hollands, managing director at Bestinvest, said: “If your savings are tied-up in an investment fund that is repeatedly delivering worse returns than the market it invests in then, then you really owe it to yourself to take a closer look and think about whether you might be better off moving it elsewhere.
“The differences between the best and worst performing funds are enormous and so it is essential to choose funds very carefully and then keep a beady eye on them or opt for low-cost trackers instead. The latter won’t beat the returns of market but will closely mimic them.”
He added that it is not always obvious to savers if their money was tied up in a dog fund as a majority of the funds still made returns. Only 32 of the 119 lost investors’ cash.
“Of course, the past is not the future and there can be times when it might be worth hanging on,” he said.
“For example, if a new manager with a better track record has recently put in charge, or because you believe an approach that has been out of favour is about to make a come-back. However, if you really cannot find a convincing reason to stay-put in an investment also-ran then moving elsewhere could give your ISA or pension a new lease of life.”
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