Spot the dog

gadgetmind

BestInvest have just published their most recent "spot the dog" report.

http://www.bestinvest.co.uk/guides/Request.aspx?GuideId=2

You have to give them some detail to download it, but if you're interested in which funds from houses such as Schroder, M&G, Marlborough, AXA, L&G, Jupiter, Neptune, Old Mutal and Henderson have underperformed their stated index by 10% or more over the last three year, then it's worthwhile.

One interesting quote is, "Unfortunately we don’t attribute the drop in dog fund numbers to a dramatic improvement in the consistent performance of some fund managers. Instead, it’ s largely down to volatility in the markets. For a fund to become a dog it must fail to deliver against its selected benchmark in each of the last three years and market conditions have created opportunities for managers to outperform for short periods while still underperforming over the longer term. "

On the other hand, fund fans will find cheer in the fact that BI set the 10% barrier as setting it to 0% would mean that all trackers classed as dogs!

It's also interesting to see that a few funds that BI previously rated as 3/4 stars have now ended up in the dog house.

Linton

Unless you take the trouble to investigate each fund, I suspect such lists are pretty meaningless.

For example during the past 3 years the FTSE-100 has risen by nearly 50%. The more cautious funds will have risen by significantly less - it doesnt mean they are "dogs", it just means that they are cautious and probably fell by a lot less than than the FTSE-100 during the credit crunch.

This hypothetical fund will perhaps be in the 1st quartile during 2008 and 4th quartile in 2011. Does this mean that it's inconsistent? No, it just means it is more consistent than the index. It is listed as a best buy in 2008 and a dog in 2011 when its performance characteristics havent actually altered.

barak

Linton wrote: »

Unless you take the trouble to investigate each fund, I suspect such lists are pretty meaningless.

For example during the past 3 years the FTSE-100 has risen by nearly 50%. The more cautious funds will have risen by significantly less - it doesnt mean they are "dogs", it just means that they are cautious and probably fell by a lot less than than the FTSE-100 during the credit crunch.

This hypothetical fund will perhaps be in the 1st quartile during 2008 and 4th quartile in 2011. Does this mean that it's inconsistent? No, it just means it is more consistent than the index. It is listed as a best buy in 2008 and a dog in 2011 when its performance characteristics havent actually altered.

I think you will find that the "dog" funds are those that have consistently underperformed within their sector over several years.

gadgetmind

barak wrote: »

I think you will find that the "dog" funds are those that have consistently underperformed within their sector over several years.

Quite so, and BestInvest even take the liberty of judging a fund relative to the sector they mainly invest in rather than the sector that the fund chooses to use as a benchmark.

What a bunch of party poopers, eh!

Linton

The problem is that the sectors can be very broad comprising funds with different styles and objectives. So comparison purely on a 3 year total return is perhaps rather misleading.

I have followed my own advice and looked in detail at some of the UK Equity dog list:

Premier Ethical: Obviously an ethical fund which in general perform worse than more general funds. Compare this with the FTSE4 UK Good Index and you will see it has actually outperformed it over 1,3, and 5 years.

Pru Ethical: Another ethical fund. Compare with Premier: it outperformed Premier in the bad years and underperformed against Premier in the good, so apparently an example of my initial point.

Jupiter Undervalued assets: Yup, this looks like a dog

L&G Equity: No better

Ignis Cartesian: Even worse

L&G Active Opportunities: 1 particularly poor year but otherwise tendancy to slightly underperformed in the good years and outperform in the bad.

CF Canlife growth: Another fund that appears to do better in the bad years and worse in the good.

At this point I got bored, but hope I have made the point. When looking at investing in funds it is not a good idea to base a decision solely on relative performance over an arbitrary time period, particularly a short one.

You need to try to get some understanding of what the fund is trying to do and how it it is doing it, and match these with your objectives.

Linton

Just looking at the Best in Breed:

The SL Ethical looks good BUT it performed very badly during the crash years of 2007/2008. So it looks like it got its current starring position over the past 3 years simply by being less defensive than the index.

Someone naively looking at the BestInvest data wanting an Ethical fund might conclude that the SL fund is indisputably the one to buy. But actually over the 5 years covering more of the cycle its performance was only 1.5% better than the "dog" Premier Ethical which has provided a much less bumpy ride.