The £2.2bn fund is one of four new entrants to Bestinvest’s hall of shame that also feature in the online stockbroker’s ‘Top-rated funds’ buy list, alongside the £1.2bn Jupiter Income Trust, £75m EdenTree Amity European and £342m Morant Wright Nippon Yield funds.
The number of underperforming funds featuring in the report has soared to a ‘staggering’ 150, the highest number in the history of the study and a 65% jump on the 91 identified six months ago. Assets held in ‘dog’ funds have jumped to £54.4bn, up from £43.9bn, with Invesco accounting for the most, at £11.4bn, spread across 13 funds.
Wright’s Fidelity Special Situations fund, reaffirmed as a Bestinvest buy list pick this month, lost 15% of investors’ money over the three years to the end of June, lagging the returns of the MSCI United Kingdom All Cap index by 9%.
The fund has suffered in recent years under Wright’s value, contrarian approach, while the manager (pictured) admitted in April he had been caught out during the coronavirus crash as ‘normally defensive’ companies in the portfolio turned out to be highly exposed to the pandemic.
Bestinvest said it still backed the fund and referenced the widening gap between the returns of highly-rated ‘growth’ companies and out-of-favour, high-yielding ‘value’ stocks
‘Such a strong disparity in performance between “growth” and “value” investing is unlikely to continue forever and so these managers will no doubt be hoping that they will eventually have their day in the sunshine again.
‘For our part, we continue to back Fidelity Special Situations for this type of approach. The manager Alex Wright has done fantastically well in the past and since the market lows of March 2020, the fund has performed well.’
Bestinvest identifies ‘dog’ funds as those which have underperformed their benchmarks for each of the last three consecutive years and by five percentage points over the last 36 months.
In the UK equity income sector, Jupiter Income Trust is another such fund. Ben Whitmore’s value-orientated strategy slumped to a 19% loss in the three years to the end of June, lagging the MSCI index by 12%.
Invesco heads hall of shame
The inclusion of Wright’s fund – along with three others – was enough to catapult Fidelity into third place on the list of groups with the most ‘dog’ assets under management.
Invesco topped the list for the fifth time in a row, with £11.4bn of investors’ money across 13 funds, amounting to a fifth of all ‘dog fund assets’.
Mark Barnett (pictured)’s former funds continue to account for nearly half of that, though the former manager left the Henley-based group by ‘mutual agreement’ in May, leading to a shake-up of its UK equity range.
The Invesco High Income and Income funds dropped 33% and 32% respectively in the three years to the end of June, both lagging the MSCI UK All Cap index by 26%.
The funds have since been renamed UK Equity High Income (UK) and UK Equity Income (UK), with £3.1bn and £1.4bn of assets respectively under new managers Ciaran Mallon and James Goldstone. Barnett’s defunct UK Strategic Income fund also declined 34% in the period and has since merged with the smaller fund.
However, the range of underperforming funds spans global markets at Invesco, which has a bias towards value investing. The group also has four global funds, three European, a North American, Asia Pacific and Japanese fund on the ‘dog’ list.
‘Pretty much every part of the globe can be accessed through an Invesco pooch,’ said Bestinvest in its report.
National financial advice group St James’s Place took second spot, with eight ‘dog’ funds totalling £6.9bn in assets.
Of the other funds featuring both in the ‘Spot the Dog’ report and Bestinvest’s buy list, EdenTree Amity European lost 4% over the three years to the end of the second quarter, trailing the MSCI Europe ex UK index by 13%.
Morant Wright Nippon Yield’s 2% slide in the same period lagged the returns of the MSCI Japan index by 17%.
‘If you hold any “dog” funds in your portfolio, you should certainly consider whether or not to stick with them or move elsewhere. However, you should not automatically ditch a fund that has endured a period of disappointing performance without first exploring the reasons why,’ said Jason Hollands, Bestinvest’s managing director.