Dog funds: the worst places to have your money invested

When it comes to investing money, many of us turn to the expertise of professional stock pickers to decide where the best home for our cash is.

Rather than start reading the Financial Times and pick out individual listed businesses to back, we rely on fund managers to do that on our behalf.

The trouble is that while some managers do it well and end up delivering returns well above the market average, others have less than impressive records.

Twice a year, Bestinvest publishes a ‘Spot the Dog’ report, highlighting the industry’s worst ‘dog’ funds ‒ in other words, the ones that have left investors with the least impressive returns.

How dog funds are identified

Investment is supposed to be a long-term activity ‒ you can’t judge an investment based on its performance over a few months.

With that in mind, Bestinvest judges funds on how they have delivered over the previous three years.

To be classed as a dog fund, the fund needs to have delivered worse returns than the market in which it invests for three consecutive 12-month periods.

And over that three-year period, they need to have underperformed it by more than 5%.

As a result, funds that have had an iffy year or which have been only a little worse than average aren’t flagged up as stinkers ‒ the report is picking out the worst funds that really are letting investors down.

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Who let the dogs out?

Unfortunately, there are plenty of dog funds out there, with the number on the rise. In total, there were a staggering 151 funds identified, up from 56 last time out, a growth of a frightening 170%.

Just as worrying, the amount of assets held in these dog funds is up significantly.

Bestinvest found that this had more than doubled from £46.2 billion to a mammoth £95.26bn.

The funds you should be worried about owning

It’s worth noting that some fund houses were particularly poor performers, with a host of their funds on the warning list.

Columbia Threadneedle for example has a whopping nine funds on the list, which between them hold more than £3.34 billion. Fidelity meanwhile has seven funds, and St James’s Place has three funds.

Notably, even funds held by superstar fund managers have suffered of late to the point that they have ended up on the list, including the Fundsmith Equity fund, overseen by Terry Smith. 

But what about the individual funds that are the biggest dogs?

Here are the 'top 10' by fund size according to Bestinvest:

Source: Spot the Dog, February 2024

And here are the worst dog funds, based on their performance against the market:

Source: Spot the Dog, February 2024

Don’t accept an underperforming fund

Obviously, all funds can have a difficult time, and if you genuinely believe in the fund manager and their approach to stock picking, then you might prefer to hold fire and try to ride out the troubles.

But many of us would be far better off by casting off the fund laggards and moving our money elsewhere.

There are plenty of fees to bear in mind though.

Before you drop that dog fund, check exactly how much it would cost you to do so, and what fees you’ll face with whatever funds you would prefer to invest in.

Just moving to a new fund can’t be the end of it either.

It’s important you regularly monitor the performance of your money – but not too often – to make sure that it’s delivering the sort of returns you expect.

A winning fund today may be tomorrow’s dog, so keep a watchful eye on how it’s doing, and if standards drop consistently, then it may be time to move on.

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