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St James’s Place, Ballie Gifford and Fidelity International have been singled out for having some of the consistently worst-performing funds in the UK.
This month Bestinvest has once again released its ‘Spot the Dog’ funds report and some 137 funds have been flagged as underperforming, significantly.
Together, the underperforming funds hold £53.4bn assets.
The bi-annual report highlights equity funds that have consistently underperformed their benchmark over three consecutive 12-month periods. To be eligible for the Bestinvest ‘doghouse’, strategies must also have underperformed by 5% or more over the three-year period analysed.
Global equities housed the most underperforming strategies by sector with 44 responsible for £26.2bn of the assets named. However, this was a slight improvement on the 51 strategies at the start of the year.
Meanwhile, ESG funds made up a fifth of the overall tally, which in part reflects the unexpected surge in oil and gas prices on the back of post-pandemic supply chain pressures in 2021 and Russia’s invasion of Ukraine.
Over the period, the MSCI World Energy Index returned 98%, compared to the MSCI World Index’s 28%.
The MSCI Global Alternative Energy Index fell 38%, highlighting sustainable funds struggles over the period.
Jason Hollands, managing director of Bestinvest, said: “In 2023 and 2024, it has been the blistering performance of names such as microchip maker Nvidia, Alphabet, Amazon, Meta Platforms and Microsoft that dominated the investment news. Along with Tesla which has had a tougher time in 2024, this narrow band of stocks have earned the moniker the ‘Magnificent Seven’.
“The Bloomberg Magnificent Seven Index, comprised of an equal weighting in these seven US mega caps has surged 42% over the past year, as the frenzy over AI accelerated.
“When you consider the Mag 7 now represents a third of the US S&P 500 Index by market capitalisation and 22% of the MSCI World Index, it helps to explain why global fund managers not fully weighted to this extremely concentrated band of influential stocks struggled to consistently beat the markets.”
Ten ‘Great Danes’
Ten funds with over £1bn assets, including three Fidelity funds and two SJP strategies, made the list. The largest, the £10.7bn SJP Global Quality fund, underperformed its benchmark by 27% over the three years.
However as you would expect, Justin Onuekwusi, chief investment officer at St. James’s Place, questioned the methodology and conclusions of the report.
“In our view, investors should remember that past performance is not an indicator of future results and should approach short-term rankings and recommendations with a healthy dose of scepticism. Our research clearly shows that selling poorly performing funds in the short term to buy that year’s top performers often negatively impacts investor returns over the medium to long term.”
A Fidelity International spokesperson added that the firm takes extended periods of underperformance seriously and constantly monitors, reviews and takes action to ensure they meet the needs of clients.
In March, management of the £3bn Fidelity Global Special Situations fund was taken over by Christine Baalham and Tom Record. Since joining, Fidelity said the managers have been in the process of transitioning the portfolio.
Largest funds on the list
The Artemis Positive Future fund was named as the worst performer overall over three years, trailing its benchmark by 71% over the period. In March, the firm announced that the quartet of portfolio managers running the strategy had exited the firm, with head of impact equities Sacha El Khoury taking lead of the fund.
The strategy was followed by Baillie Gifford’s £490m global discovery fund, which lagged its peers by 65% over the three years.
Notably, while Terry Smith’s Fundsmith Equity and Nick Train’s Lindsell Train UK Equity funds made the list for the first time in March, the duo were not included in this edition.
Biggest underperformers overall
Bestinvest’s Hollands added that the report is a reminder to investors to check their portfolio at regular intervals to assess the performance of their assets.
“It is important to stress that Spot the Dog should not be treated as a simple list of funds to ‘sell’, it does highlight the importance of monitoring a portfolio of investments and asking yourself whether you remain comfortable with your holdings or whether it is time to make some changes.”
“Funds can stumble for a myriad of different reasons – from poor decision making or a run of bad luck to instability in the team or because the fund has a style or process no longer favoured by recent market trends,” he added.
“Identifying whether a fund is struggling with short-term challenges that will later pass or more deep-rooted issues with long-term consequences is vital for investors considering whether to remove an investment from their portfolio.”
Once again, the list of underperformers is eye-opening but fascinating. At TPP we have developed trackers that will follow each index at a rate of 1.5x – obviously, the moves are in both directions, but over time assuming equities increase in value, they will outperform their benchmark by 1.5x.
