Latest Spot the Dog report from Bestinvest names and shames 56 consistently paw-performing equity investment funds and finds a 27% increase on the 44 disobedient pups in the February 2023 report
The latest pack of misbehaving mutts hold £46.2 billion of investors’ wealth – more than double the £19.1 billion recorded in the last edition of the report
Bestinvest have revealed that there are nine Great Dane-sized funds – each over £1 billion in size – which account for three-quarters of the lagging assets: that’s a huge sum of savings that they say could be working much harder
Global equity funds are home to the largest share of disobedient canines – despite a better start for stock markets in 2023 fuelled by excitement over artificial intelligence. Having digested the report, investors and advisers are urged to check their portfolios as number of underperforming ‘dog funds’ jumps. Check out all the latest details below:
Global stock markets may have enjoyed a better start to 2023 than expected following a dismal 2022, but gains have been centred on a familiar group of megacap names that have benefitted from the emerging artificial intelligence trend rather than a sweeping resurgence across the board.
As a result, more funds have entered the doghouse, particularly in the global sector. While seasoned investors accept that short-term markets are impacted by current economic challenges – namely rising interest rates and high inflation – they will be less accommodating if they later discover their investments have performed even worse than the markets their funds invest in.
Spot the Dog – the biannual report produced by online investment and coaching service Bestinvest – never names and shames a fund just because markets overall are going through a period of turbulence. After all, only the most skilled hands can successfully navigate a fund through such a prolonged period of uncertainty. What the report does do, however, is highlight the misbehaving mutts whose poor performance is more deep-seated than a short-term wobble, with the errant hounds flagged in this report consistently underperforming relative to their relevant market index over three consecutive 12-month periods and by 5% or more over the entire three years analysed.
In the latest edition of the report, 56 equity funds have been identified as serious and persistent underperformers, a 27% increase on 44 dog funds exposed in the last report released in February. More worrying, however, is the size of the big beasts featuring in the pack with the amount of assets held in these mutts up by a whopping 142% to £46.2 billion (bn) from £19.1bn.
The global sector saw the highest number of dog funds overall, with 24 relegated to the doghouse, up from just 11 funds last time, representing a troubling 15% of overall assets in the sector and accounting for almost three-quarters of the total dog funds by assets – £32.14bn, up from £4.49bn in the last report.
This may seem surprising considering the renewed strong performance from several US megacap technology companies, all beneficiaries of the emerging artificial intelligence trend, that combined represent a big chunk of total global indices. The launch of ChapGPT and other generative AI tools, and subsequent rapid adoption by millions of users, has generated excitement about the growth of the sector, kicking off a new bull run in stocks seen to be likely beneficiaries of AI take-up, including chipmakers, software firms and online giants.
However, this had an impact on global funds that either don’t hold megacap names, deterred by their high valuations or lack of dividends, or hold a lower weight compared to their index – a factor driving 24 funds straight into the doghouse.
The spotlight also falls on the nine Great Danes (funds with assets over £1bn) featured in the list this year – up from six in the last edition of our report. Three funds from one fund house accounted for more than £26bn of the total number of assets held in dog funds. Again, the top three Great Danes are to be found in the global sector with the growth in the number of outsized canines very concerning – as they account for three-quarters of the overall assets held in dog funds. Once again, this highlights that some investors are leaving their money with managers whose investment approach is deeply out of step with the markets.
While bigger groups dominate the list, a number of specialist, boutique investment managers also have funds on the list. Boutiques remain a popular option with investors, as they typically have an experienced team focused on a single asset class who live and die by their performance.
However, some recognition needs to be given to fund managers that have managed to bring their errant hounds to heel, with former Great Danes along with other wayward pups no longer featuring on the list after responding to some doggie discipline. For example, Invesco, which long dominated previous editions of the report, no longer has any funds in Spot the Dog.
It is also good to highlight sectors featuring the most perfect pups with Japan’s smaller companies and emerging markets having just one or two dog funds to their name, illustrating how active fund managers can often flourish in less well-researched parts of the market. There were also no global equity income funds on the list this year, thanks to a revival in dividend investing.
Jason Hollands, Managing Director of Bestinvest, the online investment and coaching service, said: “For three decades, Spot the Dog has named and shamed consistently underperforming investment funds to help investors take stock of their portfolio. The purpose of the guide is to encourage investors to keep a closer eye on their investments, not only to check how their investments are performing but also to assess what action is required and when.
“The fund management industry has become increasingly competitive over the past couple of decades with more players in the market and fund managers needing to perform exceedingly well just to be average. For investors choosing to invest in actively managed funds, finding managers with the skill to deliver superior returns is vital if they are to justify paying the fees to be invested in those funds. With many fund managers failing to achieve this over the long term, Spot the Dog identifies the funds that require special attention because they have consistently performed particularly badly against their benchmark.
“Of course, every fund manager will go through weaker periods – whether that is a run of bad luck, or they are sticking to a style or process that may be temporarily out of fashion. Identifying whether these are short-term or structural factors is key and investors should ask some questions before deciding to stick with a fund or switch. Things to consider include whether a fund has become too big, which might constrain its agility, or if there have been subtle but important changes in the management team. Also, is the manager straying from a previously successful approach or are they now too burdened with additional responsibilities?
“As always, this edition of Spot the Dog includes some former star players that have subsequently fallen on hard times, while others that were confined to the doghouse have now been released after finding better fortunes. The difference between the best and worst performing funds cannot be explained by fees alone and ultimately comes down to the decisions taken. This highlights just how important it is for investors to be super selective when choosing actively managed funds and once invested, to monitor progress carefully.”
Whether it’s former pedigree pooches that are now misbehaving, or humdrum hounds that consistently fail to justify their fees, Spot the Dog is here to sniff them out. Here are some further insights from our latest report:
How many funds are in the doghouse?
We have identified 56 funds in this edition that meet our strict criteria* to qualify as a dog fund. While this is a 27% increase on the 44 funds featured in the last edition in February 2022, it is still down on the 86 funds revealed in January 2022 and the high of 150 identified at the start of 2021. However, it’s worrying that more outsized canines have hit the list, pushing the amount of assets held in the doghouse up sharply from £19.1bn in our February report to £46.2bn today.
Which sectors have the most dogs?
The largest pack of troublesome pooches are to be found in the Global sector. Assets in global dog funds rose to £32.14bn in the latest report, up from £4.49bnn in February – a figure that worryingly represents 15% of the overall assets in this sector, an increase from 3% last time round.
Many global managers appear to have been wrong-footed by the turbulence in this sector over the past few years. US and technology and communication services sectors dominate the indices by which global funds are measured. Two-thirds of the MSCI World’s market capitalisation, for example, is in the US and 20% in information technology. This changed dramatically in 2022 with both sectors experiencing a significant sell-off, with the US managing to hold its ground thanks to the strong Dollar. It changed again this year when the big technology names, and the US, rose back to the top thanks to the frenzied interest in artificial intelligence. With so much change, some managers were caught out, including some of the biggest names, such as St. James’s Place, which accounted for £26.05bn of the £32.14bn held in troublesome dog funds.
How many Great Danes featured in this edition?
Nine Great Danes, poor-performing funds with assets in excess of £1bn, have been labelled as misbehaving mutts, a rise of a third on the six that featured in the last edition. Leading the pack, is St. James’s Place, with its £11.47bn Global Quality fund and £7.49bn Global Growth funds.
St. James’s Place also made the Great Danes list for its £7.1bn International Equity fund, the third biggest beast by size and its Growth European Progress fund (£1.85bn which took fourth position. Other familiar miscreants included Scottish Widows UK Growth (£1.82bn), managed by Schroders, which made the list again confirming its status as one of the most consistent poor performers in the history of Spot the Dog.
The four other massive mutts to receive a Great Dane accolade include the Artemis US Select Fund (£1.53bn, Columbia Threadneedle’s Responsible Global Equity Fund (£1.41bn) abrdn UK Smaller Companies (£1.11bn) and Troy Asset Management’s Trojan Income (£1bn).
Top 10 biggest beasts by size
| Fund | IA Sector | Size (£bn) | Value of £100 invested after 3 years | 3-year under performance (%) | |
| 1 | St. James’s Place Global Quality | Global | 11.47 | 114 | -24 |
| 2 | St. James’s Place Global Growth | Global | 7.49 | 109 | -28 |
| 3 | St. James’s Place International Equity | Global | 7.09 | 101 | -36 |
| 4 | St. James’s Place Growth European Progress | Europe Excluding UK | 1.85 | 113 | -17 |
| 5 | Scottish Widows UK Growth | UK All Companies | 1.82 | 120 | -14 |
| 6 | Artemis US Select | North America | 1.53 | 125 | -17 |
| 7 | Columbia Threadneedle Responsible Global Equity | Global | 1.41 | 120 | -17 |
| 8 | abrdn UK Smaller Companies | UK Smaller Companies | 1.11 | 90 | -18 |
| 9 | Troy Asset Management Trojan Income | UK All Companies | 1.00 | 105 | -29 |
| 10 | St. James’s Global Emerging Market | Global Emerging Markets | 0.87 | 85 | -20 |
Source: Spot the Dog, August 2023 (Red for Great Danes)
Which fund groups earned the most dog tags?
St. James’s Place not only topped the Great Danes list, but it was also the worst performing fund manager, with its paw prints on six measly mutts. It currently has £29.3bn across these six funds, that is 63% of the total dog fund assets in this survey. To put this in perspective, the next highest fund group Artemis holds £2.66bn dog funds, which accounts for 5.8% of the overall assets on the list.
While three of six St. James’s Place funds are in the Global sector – Global Quality, Global Growth and International Equity – its poor performing Growth European Progress and Continental European funds appear in the European sector while it also features in the Emerging Markets sector with its Global Emerging Markets funds.
Two things of note here is that St. James’s Place outsources management of its funds by appointing external fund managers as investment advisers, with the ongoing costs on its two largest global funds coming in at 1.88%. However, the group shifted the positioning on its three global funds in July last year as it looks to improve performance, though the switch has not had an effect yet.
Other major players with disobedient pups include Scottish Widows, with two funds worth £2.1bn included, Columbia Threadneedle, which has four funds on the list worth £1.92bn and arbdn with only two funds worth £1.67bn. Those hunting for a common theme across the companies and strategies that have struggled might consider there to be a bias towards “quality growth” companies. It has been a tough three years for this area of the market, which has fallen between the cracks of the different rotations between growth and value.
Which were the worst performing beasts overall?
The top two worst performers appeared in the global sector where there tend to be the fewest constraints on both style and geography, leading to some quite niche and specialist approaches that don’t always work out. The Baillie Gifford Global Discovery fund, which focuses on smaller companies, has the unfortunate accolade of being both the worst relative performer and the worst for absolute losses, with the fund lagging its index by -70% over the three-year period, turning £100 into just £61.
Taking second position in these unfortunate categories is the SVS Aubrey Global Conviction fund, which lagged its index by -64%, turning £100 into just £74 over the same period.
Top 10 worst performing dogs overall
| Fund | IA Sector | Size (£bn) | Value of £100 invested after 3-years | 3-year under performance (%) | |
| 1 | Baillie Gifford Global Discovery | Global | 0.78 | 61 | -70 |
| 2 | SVS Aubrey Global Conviction | Global | 0.04 | 74 | -64 |
| 3 | Premier Miton US Smaller Companies | North American Smaller Companies | 0.06 | 95 | -47 |
| 4 | AXA ACT People & Planet Equity | Global | 0.01 | 92 | -45 |
| 5 | JP Morgan US Small Cap Growth | North American Smaller Companies | 0.20 | 100 | -42 |
| 6 | Unicorn Outstanding British Companies | UK All Companies | 0.06 | 97 | -36 |
| 7 | St. James’s Place International Equity | Global | 7.09 | 101 | -36 |
| 8 | EF Rosevine Capital Global Equity | Global | 0.01 | 103 | -35 |
| 9 | AXA Framlington UK Sustainable Equity | UK All Companies | 0.07 | 103 | -30 |
| 10 | Troy Asset Management Trojan Income | UK All Companies | 1.00 | 105 | -29 |
Source: Spot the Dog, August 2023
Which fund style walked away with the most rosettes?
Different styles come in and out of fashion and after three decades of trailing its international peers, Japan has seen its popularity soar since the start of the year. As a result, only one fund in this sector made the dog list – the £183m T Rowe Price Japanese fund, which found its growth approach fell out favour, though it only makes up 1% of overall assets in the sector.
For the rest of the sector, a much stronger performance across the board saw the Nikkei ahead of all other major markets on the year to the end of June with even Warren Buffett, one of the world’s most seasoned investors, taking positions in a number of Japanese trading companies. A slump in the Yen has boosted the competitiveness of Japanese exports and the overseas earnings from Japanese companies. Meanwhile, shifting corporate governance rules such as changes at the Tokyo Stock Exchange designed to encourage Japanese companies to improve the returns on the capital they invest has helped to galvanise the country’s corporate sector.
Spot the Dog is not a list of funds that should be sold automatically, it is based purely on factual analysis of past performance which is not necessarily a guide to how a fund will perform in the future. Investments go down as well as up and investors may not get back the amount originally invested.
This article is solely for information purposes and is not intended to be and should not be construed as investment advice. Whilst considerable care has been taken to ensure the information contained within this commentary is accurate and up to date, no warranty is given as to the accuracy or completeness of any information and no liability is accepted for any errors or omissions in such information or any action taken on the basis of this information.
Notes:
* How a fund becomes a Dog
Bestinvest only analyses UK domiciled and regulated open-ended investment companies (OEICs) and unit trusts that invest predominantly in equities. We also only look at funds open to retail investors. To make it onto the list, we apply two filters. First a fund must first have failed to beat the appropriate benchmark index over three consecutive 12-month periods, to highlight consistent underperformance. Second, the fund must have underperformed the benchmark by 5% or more over the entire three-year period of analysis – which in this case ends on June 30, 2023.
Why Spot the Dog is helpful for investors
Choosing which funds contain a place in an investment portfolio can be challenging for DIY investors, which is why this latest edition of Spot the Dog helps narrow the field. In such uncertain economic times, investors need to ensure every part of their portfolio is pulling its weight, so Spot the Dog acts as an essential resource to help savers assess whether their investments are being hounded by terrible returns. This is not to say that savers need necessarily to switch out of a Dog fund, as there may be changes already in motion to turn things around. But anyone holding a dog fund should certainly consider whether to continue holding the underperformer or ditch and switch to an alternative.
In addition to this Spot the Dog, Bestinvest also publishes the Best Funds List. While the existing list features 127 investments including 30 listed investment trusts and investment companies, 10 exchange-traded funds (ETFs) and two exchange-traded commodities (ETCs), the next edition of this twice-yearly report will also be released soon.
