More funds in the doghouse
The number of 'dog' funds that consistently underperform their benchmark by 10% has soared over the past 12 months, despite a solid year for equities
Independent financial adviser BestInvest's Dogs List has jumped from 38 funds at the beginning of 2006 to 60 today. The value of money under management has risen to more than £10bn from £3.3bn a year ago.
A fund must have underperformed its benchmark by at least 10% over the past three years to be classed as a dog. The rise in the number of underperfoming funds shows the importance of keeping a close eye on investments and how they are being managed.
According to the list, Prudential/M&G is the worst offender, with nearly £3bn of investors' money tied up in dog funds. The massive Prudential UK Growth fund appears again after underperforming the FTSE All-Share Index for eight of the past 10 years, while the M&G Income and Japan funds are also highlighted.
Henderson remained second on the list, despite making a number of manager changes in recent years. It has £1bn of investors' money in dog funds, though it has shown improvement in its UK-focused funds.
St James's Place was replaced in third place by Scottish Widows, whose Global Growth fund made an eighth successive appearance, while Canada Life came in fourth, where just three of the company's 13 funds have outperformed their benchmark.
To cap a bad year for Carlos Moreno, his UK Growth fund dragged Fidelity into fifth place in the list. In his first year in charge, he returned just 6.3% to investors.
However, BestInvest states that changing fund manager doesn't necessarily guarantee success. Of the 60 dog funds that feature, 43 have changed manager at least once in the past three years. Of these, 17 have shown improvement, but not enough to drag them out of the doghouse.
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Justin Modray, head of communications at BestInvest, says: 'Time after time, active managers generally fail to prove their worth. The increase in dogs confirms that things are not getting better, so cherry-picking good fund managers from bad ones is as important as ever.'
He adds: 'While dogs are not an automatic sell, in most cases a move to a more successful fund with a proven manager at the helm is likely to be a good idea.'
Group | Funds under management | Value of dogs | Percentage of total |
---|---|---|---|
SOURCE: BestInvest | |||
January 2007 | |||
Prudential/M&G | £17.8bn | £2.96bn | 16.6% |
Henderson | £4.75bn | £930m | 19.6% |
Scottish Widows | £13.23bn | £840m | 6.3% |
Canada Life | £1.63bn | £830m | 50.9% |
Fidelity | £16.15bn | £780m | 4.8% |
First State | £2.52bn | £690m | 27.4% |
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