Investors are therefore being urged to consider cashing in or switching their funds, even if they suffer a loss.
Justin Modray of Bestinvest, author of the independent financial adviser’s Spot the Dog report, said: “Many investors hold on to ‘dogs’ in the misguided belief that things will improve or that all funds perform similarly, especially during times of falling markets and fund values. Investors must satisfy themselves that any dog funds they own are worth continuing to hold.”
Bestinvest’s report highlights the active funds that have lagged their benchmark index by at least 10% over three consecutive years. According to its research, 149 funds out of 1,028 have fallen short of the mark over the past 36 months.
The foundering funds include Abbey National UK Growth, which has attracted more than £1.2 billion. Over the past three years it has slumped in value by 36%, compared with a 29% drop in the FTSE All-Share index.
Other funds that are named and shamed include the £839m Friends Provident UK Equity scheme, which has lost 40% over three years. But the worst UK fund is Legg Mason UK Emerging Growth, which is down 75%.
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Many smaller-companies schemes have had a poor run: about 23% of the funds in the sector are falling behind. Bottom of the heap is M&G Innovator, which has plunged 75% over three years. It has suffered because it invests primarily in technology stocks and growth shares that perform poorly when economic growth is sluggish.
The worst of the global funds include Fidelity Managed International. It has dropped 47% over three years, compared with a fall in the MSCI World Index of 39%.
In Europe, Invesco Perpetual European Growth has plunged by 62%, compared with a 38% fall in the benchmark index. Other dogs include Legal & General European, which has lost 45%, and M&G European, down 48%. Among North American funds, Bestinvest highlights Britannic American Growth, with a 50% drop, Hill Samuel American Growth, which is down 49%, Govett US Blue Chip, with a loss of 48%, and Friends Provident American Growth, down 50%. The S&P 500 index fell 36% over the same period. The group with the highest proportion of investors’ money in dog funds is Isis, which also manages schemes for Friends Provident. It has £2 billion in five failing funds.
However, you should not necessarily ditch every fund in your portfolio that makes a loss. Savers need to distinguish between schemes that have the potential to recover and those that are simply bad. A weak manager may have been replaced, or more resources devoted to running the fund, enabling a poor performer to bounce back.
Funds that are a definite sell according to Modray include Manek Growth, which has lost 63% of its value over the past three years. He would also ditch First State British All Companies, which has fallen 37%, and First State British Opportunities, down 47%.
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Other advisers also highlight failing funds. Paul Ilott of Bates Investment Services advises savers to abandon Aegon UK Equity Growth, Govett UK Blue Chip and M&G UK Growth. Overseas investors should dump Credit Suisse European and Old Mutual European. To get a free copy of the Spot the Dog report, phone 0800 093 0700.