There is a guide to investment funds that most advisers don’t really want you to know about. It’s called Spot the Dog and is produced by a firm called Bestinvest.
Don’t be fooled by the preschool moniker, this pooch packs a punch. It names and shames investment funds that deliver consistently disappointing returns, otherwise known as ‘dog funds.’
Why I am telling you this? Because it is a great way to highlight the underperformance of active managers and explain why we use passive portfolios to capture market returns.
The kennel club
The good news is, the funds we advocate will never appear on the pages of Spot the Dog. They will never grace its b-side, Pedigree Picks, either, but I’ve been around long enough to see managers plumet from hero to zero pretty quickly, so I’m not too concerned about that.
In the latest edition, there are 86 funds that meet the ‘dog’ criteria, up from 77 in the last report. Many can be found in the global and global equity income sectors. To be defined as a ‘dog,’ funds must have failed to beat their benchmark for three years and must have underperformed by at least 5% for the entire period of analysis.
We’re not talking about a bad patch here, but entrenched poor performance. To put this into context, the top active fund in 2021 rose by 39.4%, whilst the worst saw just a 0.5% increase. This reflects decisions taken by their managers and underlines how important it is to check your investments are delivering value for money.
Spot the Dog highlights the total disconnect between the scale of an advisor/fund management business and its performance. For example, St James’ Place continues to take in huge amounts of client money and could, therefore, be described as successful. However, it currently sits second on the list, with £5.74 billion in dog funds. This is the reality of the actual performance captured for clients – usually at significant cost.
Evidence not ego
The fund management industry is increasingly competitive and those in charge need to be really good just to be average. Only a tiny proportion of managers succeed in beating their benchmark index in the long term. Indeed, it would take 22 years of data to be 90% certain they are genuinely skilful and not just lucky.
Passive investments are demonstrably more consistent than active ones and outperform them in the medium to long term. For this reason, we believe in keeping our approach simple, avoiding adviser-led portfolio picking and making decisions based on evidence, not tactics or gut feeling.
To find out more about how we construct client portfolios, don’t hesitate to contact us on (01246) 298181 or email: enquiries@belmayne-ifa.com
