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.

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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 44 funds identified, up from 31 last time out, though it is still only around half the number of dog funds picked out this time a year ago.

Just as worrying, the amount of assets held in these dog funds is up significantly. BestInvest found that this had jumped by almost 80% from £10.7 billion to £19.1 billion.

Some of these individual funds are beefy too ‒ referred to as Great Danes in the report ‒ with six funds boasting more than £1 billion in assets each, up from three last time.

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.

Schroders was picked out as the ‘leader of the pack’, since it not only had three dog funds under its own name, but also acts as underlying managers for a further seven dog funds which are branded under Scottish Widows and HBOS. 

While BestInvest noted that these funds were poor performers long before Schroders took them over, it suggested that investors may have expected an improvement by now.

Columbia Threadneedle was also picked out, with four funds on the list, while the ridiculously named abrdn has three of its own on the list. 

Bestinvest said that some fund houses deserved particular praise, having changed their fortunes after featuring heavily in the last report.

For example, Jupiter had three funds included last time, but was not in the latest report, while Baillie Gifford, JP Morgan, BNY Mellon and M&G have all improved to the point they have no dog funds.

But what about the individual funds that are the biggest dogs? Here are the top 10 by fund size according to BestInvest:

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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