Dog Funds

talexuser

Best have just published their latest dog funds report. Their criteria are underperformance of an appropriate benchmark in each of the past three discrete 12-month periods by at least 5% consistently.

They say there is around 11bn invested in 31 rubbish funds (a lot by Schroder and Jupiter), but 6 months ago there was 45bn in 86 poor performance funds, and in 2021 for example there were 150 dog funds. 

Has active performance really improved (I can't believe it) or is this just a statistical thing where in a falling market, the falls in everything average out the worst performance to make it seem less bad?

Prism

I imagine quite a few of the value and income type funds that have underperformed over the last few years had a comparatively better return over the last year which would remove them from the 5% criteria. I doubt the average active fund has done well over the last year since so many either went for a growth or smaller company bias. Saying that, a few years of underperformance isn't an issue if some eventually come good. 

talexuser

Prism said:

a few years of underperformance isn't an issue if some eventually come good. 

Absolutely (maybe Fundsmith?) 
Though some eg Bank and Scottish Widows funds have been in the doghouse for years, presumably because outsourced to Schroders (or Woodford for St James!) and the fees adding up must wipe out most of your gains even from closet trackers.

dunstonh

Has active performance really improved (I can't believe it) or is this just a statistical thing where in a falling market, the falls in everything average out the worst performance to make it seem less bad?

The problem with talking about managed funds is that they will have a remit and a focus.  And for some of the economic cycle, that remit and objective will be out of favour and vice versa.

Equity income funds are very popular in the managed space but spent the period after the credit crunch being out of fashion and delivering underperformance as the cycle favoured growth over value.    The shift from growth to value gave equity income a boost.   You don't find many passive funds in equity income.

coastline

Starting all over again I'd have a global tracker as a core holding . Using the Trustnet Top Quartiles over 5 years HSBC MSCI World fund comes in at 84th with 67%. There's funds that have outperformed no doubt but many are specialised so we need to compare like with like. Yes I know it's only 5 years setting but a lot has gone on in that period so we have an idea.

Top Quartile Funds | Trustnet

Returns don't always keep pace over 30 years..

Long-Term Returns Of The Oldest Trusts – IT Investor

In a tax wrapper I'd add a few and I've looked at this recently. Keeping it very simple with two funds.

Chart Tool | Trustnet

With favourite added.

Chart Tool | Trustnet

Linton

talexuser said:

Best have just published their latest dog funds report. Their criteria are underperformance of an appropriate benchmark in each of the past three discrete 12-month periods by at least 5% consistently.

They say there is around 11bn invested in 31 rubbish funds (a lot by Schroder and Jupiter), but 6 months ago there was 45bn in 86 poor performance funds, and in 2021 for example there were 150 dog funds. 

Has active performance really improved (I can't believe it) or is this just a statistical thing where in a falling market, the falls in everything average out the worst performance to make it seem less bad?

I think in reality there are very few real dog funds ewhere the manager almost perversly does badly and to see the list as evidence in active/passive discussions is misleading.  The most useful funds have a particular remit and also they may have a particular style. driven by the particular manager or the fund management company as a whole, eg Baillie Gifford. "Appropriate benchmarks" may not be very appropriate.  Different allocation strategies will lead to different performance at different times. The only funds I would categorise as dogs are those without a clear remit or style and those that only exist because every fund house  must have at least one fund in each main sector, ie funds which provide no obvious reason for an investor to  choose them in particular.

For an example of my point on remit/style, look at one of the funds that the Dogs report shows as underperforming  its benchmark by 18% , TM UBS Global Equity.  Morningstar shows it as 38% UK, 27% US and only 14% tech.  It is also 30% medium/small companies.  To match it against a passive global tracker is crazy/meaningless. If you wanted a fund  with that sort of allocation (though to be honest I am not clear why one would) then that TM UBS fund is the best one could get.  If you didn't then whether it is a "dog" or top of the "best buy" list is irrelevent.

Since the 2008 crash until recently the only game in town was tech and the best predictor of fund performance was % tech.  Global or US Index funds did well because of this.  There was strong pressure on active funds to take the same path. Finding an appropriate fund for one's needs that was not high in tech needed serious effort.

Now however it would seem that the falls in tech have given opportunities for a much broader set of investment options and  hence funds with a particular focus to show good performance.