Bestinvest’s latest fund performance snapshot finds 137 equity investment funds holding a whopping £53.42 billion of investors’ wealth that consistently underperformed their relevant market benchmarks over the last three years – a 9% fall on the 151 ‘horrid hounds’, and a 44% drop on the £95.26bn in assets, featured in the previous report in early 2024.
Total tally of woeful waggers remains high as managers with low or no exposure to soaring AI-themed stocks and the energy sector, lagged their benchmarks, including numerous ‘sustainable’ funds.
Global equity funds led the list of ‘paw performers’ with 44 holding £26.18bn of wealth – a slight improvement on the 51 pooches featured at the start of the year.
Latest pack of UK equity funds (includes funds in the UK All Companies, UK Equity Income and UK Smaller Companies sectors) sent to the doghouse hits 44 with £11.14bn invested, broadly similar to the last edition but a dramatic rise on the 12 highlighted in August 2023.
The new list of serial underperformers highlights the risk to investors of leaving their portfolio off the leash for too long without enforcing some boundaries.
Downloaded the full report here
It has been a challenging three years for fund managers looking to outperform the financial markets, which is why the latest Spot the Dog report – a statistical snapshot of fund performance produced by online investment and coaching service Bestinvest – still contains a relatively high number of paw-performing equity investment funds.
While the latest tally of misbehaving mutts is down to 137, a 9% drop on the 151 humdrum hounds that met Bestinvest’s longstanding screening criteria at the start of the year, it remains significantly higher than the 56 funds flagged only a year ago. The value of assets held by ‘dog’ funds was also down, dropping to £53.42 billion of investors’ wealth, a 44% drop on the £95.26bn held by disobedient pups in the last edition of the report, due to a couple of huge funds narrowly escaping the kennel this time.
Spot the Dog – a biannual report closely followed by investors for more than three decades – never pens a fund in the doghouse just because markets are going through a difficult patch. The List does, however, highlight the funds that have consistently underperformed their relevant market index over three consecutive 12-month periods and by 5% or more over the entire three years analysed.
Funds can endure periods of underperformance for a variety of reasons. Sometimes it will be down to outright poor decision making, but it can also be because a style and strategy that has worked well over the longer run has been out of favour with more recent market trends.
Investors will naturally be curious to understand why so many funds are continuing to undershoot their benchmarks, particularly when the boom in AI at the end of 2023 helped to fire up the US stock market and global equities. However, the blistering gains seen late last year and in the first half of 2024 have centred on an ultra-narrow band of US megacap names seen as beneficiaries of Artificial Intelligence, which has resulted in extreme levels of market concentration. Fund managers not fully exposed to this handful of companies have struggled to keep pace.
The AI story also fails to cover the fuller picture of equity market performance over the past three years with the other notable theme, consistent with the previous edition of Spot the Dog, being the high representation of ESG and ethical funds on the List. ESG funds** make up a fifth of the Spot the Dog tally, a reflection of the unexpected surge in oil and gas prices on the back post-pandemic supply chain pressures in 2021, with Russia’s invasion of Ukraine serving to accelerate the inflationary effect in 2022.
Jason Hollands, Managing Director of Bestinvest by Evelyn Partners, says: “The high number of funds badged variously as sustainable or responsible that feature in the latest Spot the Dog report is likely in part down to the stellar performance of oil and gas stocks in 2021-22. Over the three-year period covered in our latest report, the MSCI World Energy Index delivered a total return in GBP of 98%***, well ahead of the MSCI World Index total return of 28%**.
“Compare this to the alternative and renewable energy market, which fell out of favour during the post-pandemic surge in energy demand, and the story is very different; The MSCI Global Alternative Energy Index declined by –38% over the same three-year period highlighting why managers focused on green energy have had it hard. However, we expect the number of ESG funds to reduce in the next couple of reports as the effect of surging energy stocks drops out of the data.
“In 2023 and 2024, it has been the blistering performance of names such as microchip maker NVIDIA, Alphabet (which owns Google), Amazon, Meta Platforms (owner of Facebook) and Microsoft that dominated the investment news. Along with Tesla which has had a tougher time in 2024, this narrow band of stocks have earned the moniker the ‘Magnificent Seven’.
“The Bloomberg Magnificent Seven Index, comprised of an equal weighting in these seven US mega caps has surged 42% over the past year, as the frenzy over AI accelerated. When you consider the Mag 7 now represents a third of the US S&P 500 Index by market capitalisation and 22% of the MSCI World Index, it helps to explain why global fund managers not fully weighted to this extremely concentrated band of influential stocks struggled to consistently beat the markets.”
Once again, global equity funds dominated the latest List of serial howlers with 44 sent to the kennels – a slight improvement on the 51 featured at the start of the year. A third of the global funds featured focus on sustainable investing and therefore did not benefit from the surge in oil and gas-related shares during this period.
The tally of UK equity funds, including funds in the UK All Companies, UK Equity Income and UK Smaller Companies sectors, came in at 44, a similar level to the last edition but a dramatic rise on the 12 highlighted in August 2023. About a quarter of underperforming UK mutts are comprised of ethical and sustainable funds due to their lack of exposure to the UK market’s sizeable energy and commodities sectors. Funds that failed to hold oil and gas stocks during this period were left at a major disadvantage in comparison to their peers that did.
The surprising inclusion of two of Britain’s most prominent and widely held funds in the last edition of the report, Terry Smith’s Fundsmith Equity and Nick Train’s WS Lindsell Train UK Equity, has proved short lived with both funds dropping off the List this time.
One area of concern, however, is the size of the big beasts featuring in the pack. Ten Great-Dane sized funds – each over £1bn in size – account for £26.81bn and therefore represent half of the lagging assets. While it is an improvement on the 15 Great Danes featured in the last report holding £65.96bn of investors’ wealth which had included the £25 billion Fundsmith Equity fund, it remains a sizeable sum of investors’ cash.
Half of the Great Danes, including the top two, can be found in the Global sector reflecting the challenges already discussed for these outsized canines and highlighting how some investors have their money with managers whose investment approach is deeply out of step with a market that has been narrowly led by a small cluster of giant companies benefitting from AI mania.
Hollands adds: “Once again, the latest Spot the Dog report serves as a timely reminder to investors to check in on their portfolio at regular intervals to assess how well their assets are performing. It is important to stress that Spot the Dog should not be treated as a simple list of funds to ‘sell’, it does highlight the importance of monitoring a portfolio of investments and asking yourself whether you remain comfortable with your holdings or whether it is time to make some changes.
“For investors choosing to invest in actively managed funds, finding managers with the right skills to deliver superior long-term returns is vital to justify paying the fees to be invested in those funds. With many fund managers failing to achieve this over the long run, the report acts as a guide to encourage investors to keep a closer watch on how their investments are performing to assess what action, if any, is required and when.
“Funds can stumble for a myriad of different reasons – from poor decision making or a run of bad luck to instability in the team or because the fund has a style or process no longer favoured by recent market trends. Identifying whether a fund is struggling with short-term challenges that will later pass, or more deep-rooted issues with long-term consequences is vital for investors considering whether to remove an investment from their portfolio.”
** Funds explicitly badged as sustainable, responsible, socially responsible, ethical or themed to address climate change or an environmental remit.
***Returns cited are in total return terms (including dividends) in GBP terms. Source: Lipper for the three years to 30/06/24).
Whether it’s former pedigree pooches that are now proving disobedient, 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:
Top 10 worst performing dog funds overall
| Fund | IA Sector | Size (£bn) | Value of £100 invested after 3 years | 3-year under performance (%) versus benchmark | |
| 1 | Artemis Positive Future Fund | Global | 0.01 | £62 | – 71% |
| 2 | Baillie Gifford Global Discovery Fund | Global | 0.49 | £40 | – 65% |
| 3 | FTF Martin Currie Japan Equity | Japan | 0.16 | £53 | – 64% |
| 4 | AXA ACT People & Planet Equity Fund | Global | 0.03 | £80 | – 53% |
| 5 | Aegon Sustainable Equity | Global | 0.18 | £82 | – 52% |
| 6 | IFSL Marlborough Global Innovation Fund | Global | 0.04 | £82 | – 51% |
| 7 | L&G Future World Sust UK Eq Foc | UK All Companies | 0.14 | £74 | – 51% |
| 8 | Baillie Gifford Japanese Smaller Coms Fd | Japan | 0.16 | £56 | – 47% |
| 9 | FSSA Japan Focus Fund | Japan | 0.06 | £70 | – 47% |
| 10 | Baillie Gifford European | Europe Excluding UK | 0.45 | £74 | – 46% |
Source: Spot the Dog, August 2024
*Performance figures shown are net of fees with income reinvested.
Top 10 biggest beasts by size
| Fund | IA Sector | Size (£bn) | Value of £100 invested after 3 years | 3-year under performance (%) | |
| 1 | SJP Global Quality Fund | Global | 10.69 | £106 | -27% |
| 2 | Fidelity Global Special Situations Fund | Global | 3.34 | £121 | -12% |
| 3 | Fidelity Asia Fund | Asia Pacific excl Japan | 2.71 | £85 | -12% |
| 4 | Ninety One Global Environment Fund | Global | 1.63 | £96 | -37% |
| 5 | Fidelity Emerging Markets Fund | Glbl Emerg Mkts | 1.59 | £81 | -12% |
| 6 | Baillie Gifford Japanese Fund | Japan | 1.49 | £91 | -26% |
| 7 | Liontrust Sustainable Future Glbl Gr Fd | Global | 1.46 | £102 | -31% |
| 8 | St James´s Place Gr Euro. Progress | Europe excluding UK | 1.39 | £111 | -8% |
| 9 | Columbia Threadneedle Responsible Global Equity Fund | Global | 1.34 | £116 | -18% |
| 10 | Jupiter Japan Income Fund | Japan | 1.16 | £109 | -8% |
Source: Spot the Dog, August 2024
*Performance figures shown are net of fees with income reinvested.
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.