Terrier(ble) returns hound many funds
Bestinvest throws a spaniel in the works – revealing once again the managers chasing their own tail
INVESTING in stock markets has been challenging for investors, with so many ways to access various investments. Fund groups and brokers are also continuously promoting new fund launches, providing a wide array of choice, but this often means that exiting investors are then ignored.
Bestinvest launched Spot the Dog to openly expose poor fund management, as there is a huge amount of money which just sits dormant in poor performing funds. In our most recent spring 2012 report of Spot the Dog there is £9.24bn invested in dog funds, costing investors £133m a year in fees. Most of the time the consistently poor performance cannot be justified by the managers. Our advice to investors is to act now, before it is too late.
The list of fund groups which appear in the report are well-known names. Topping the most recent list is Scottish Widows; who often reappear as repeat offenders, moving to top of the dogs from fifth place last year. Second in the list is M&G investments, another familiar name. However, it only has one large fund in the dog house, M&G Dividend, which has £1.192bn of investors’ money, but only constitutes 6 per cent of its assets under management as defined by Bestinvest. The five top of the dogs are completed by Schroders, Standard Life and St James.
The list of managers who feature in Spot the Dog range from those who have consistently disappointed, such as Jayesh Manek who manages the Manek Growth fund – which still has £26m invested – to former star managers such as Andy Brough of Schroder UK Mid Cap. This report makes it his fifth appearance, but the good news is that there is evidence to show that investors have since taken heed of previous Spot the Dog reports. In the current climate investment returns have proved challenging, but our advice to investors is that they shouldn’t restrict themselves by tolerating consistent under performance.
Appearing in Spot the Dog has a major impact on fund groups; serving as a wake up call for lazy managers to get dormant funds moving into gear again. Mark Lyttelton, a dog fund manager from last year, this week stepped down from managing the Blackrock UK fund. This is especially good news for investors and a very responsible action from Blackrock and Mark Lyttelton himself. We hope performance improves on his remaining two funds (Blackrock UK Dynamic and Blackrock UK Absolute Alpha) and he returns to his previous good form.
Avoiding the dogs is only part of the story. If you cannot pick the star managers then there is little point paying for active management. So with Spot the Dog we compare performance of the dog funds against our best of breed funds. When we consider how they differ, we can refer to the UK All Companies sector. Our top pick, AXA Framlington UK Select Opportunities, has returned 23.93 per cent over five years, while Legal and General Equity Trust, a dog fund, lost 10.25 per cent over the same period, a difference of over 34 per cent. The story is repeated across different sectors – in Europe Jupiter European beat Newton Continental by 39.9 per cent over five years.
Investors must start to sit up and take notice of the dog funds and should take a more proactive approach to checking up on their fund manager’s individual performance. It pays to review your investments and find out on whether your investments are dogged with poor management.