Dog funds 2024: the worst places to have your money invested

Billions of pounds are languishing in underperforming investment funds. Here's a look at the 10 worst 'dog' funds.

When it comes to investing money, many of us turn to the expertise of professional stock pickers to decide where the best home for our cash is.

Rather than start reading the Financial Times and pick out individual listed businesses to back, we rely on fund managers to do that on our behalf.

The trouble is that while some managers do it well and end up delivering returns well above the market average, others have less than impressive records.

Twice a year, Bestinvest publishes a ‘Spot the Dog’ report, highlighting the industry’s worst ‘dog’ funds ‒ in other words, the ones that have left investors with the least impressive returns.

How dog funds are identified

Investment is supposed to be a long-term activity ‒ you can’t judge an investment based on its performance over a few months.

With that in mind, Bestinvest judges funds on how they have delivered over the previous three years.

To be classed as a dog fund, the fund needs to have delivered worse returns than the market in which it invests for three consecutive 12-month periods.

And over those three years, they need to have underperformed by more than 5%.

As a result, funds that have had an iffy year or which have been only a little worse than average aren’t flagged up as stinkers ‒ the report is picking out the worst funds that are letting investors down.

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Who let the dogs out?

The good news is the number of dog funds has fallen 9% to 137 from the 151 reported in Bestinvest's last report in January. However, this is still significantly higher than the 56 funds flagged a year ago.

The value of assets held by these poor performers is also down to £53.42 billion. This represents a 44% fall on the £95.26 billion held by the worst funds in the last report.

Of course, funds can endure periods of poor performance for many reasons.

These can include poor decision-making by managers or their particular investment style and strategy being out of favour with the market.

The worst performers this time around

Global equity funds dominated the list, with 44 sent to the kennels. A third of them were focused on sustainable investing and didn't benefit from the surge in oil and gas-related shares.

It's also been a miserable period for UK equity funds. There were 44 dogs named this time around – similar to the last report but well up on the 12 listed a year ago – hailing from the UK All Companies, UK Equity Income and UK Smaller Companies sectors.

Once again, a quarter of underperforming UK mutts were ethical and sustainable funds that didn't have access to the high-flying energy and commodities sectors.

Why hasn't the AI boom helped?

Investors will question why so many funds have underperformed during a period that has seen the AI boom bolster the US stock market and global equities.

However, the phenomenal gains experienced have been focused on a relative handful of US giants that are the biggest beneficiaries of AI.

Managers of funds not exposed to many of these names will have struggled.

Therefore, any large funds that haven't bought into names such as microchip maker NVIDIA, Alphabet (Google's owner), Amazon or Facebook's owner, Meta Platforms, will have suffered.

Poor performances by the big guns

Another key finding from the report is the size of the biggest beats featured in Bestinvest's list. There were ten monsters, each worth more than £1 billion in size, that accounted for £26.81 billion of investors' cash.

Half of these names could be found in the global sector. According to Jason Hollands, managing director of Bestinvest by Evelyn Partners, it means some investors have money with managers whose approach is "out of step" with the market.

"For investors choosing to invest in actively managed funds, finding managers with the right skills to deliver superior long-term returns is vital to justify paying the fees to be invested in those funds.

"With many fund managers failing to achieve this over the long run, the report acts as a guide to encourage investors to keep a closer watch on how their investments are performing to assess what action, if any, is required."

But what about the individual funds that are the biggest dogs?

Here are the 'top 10' by fund size according to Bestinvest:

Source: Spot the Dog, August 2024

Here are the overall worst dog funds, based on their performance against the market:

Source: Spot the Dog, August 2024

Don’t accept an underperforming fund

Obviously, all funds can have a difficult time, and if you genuinely believe in the fund manager and their approach to stock picking, then you might prefer to hold fire and try to ride out the troubles.

But many of us would be far better off by casting off the fund laggards and moving our money elsewhere.

There are plenty of fees to bear in mind though.

Before you drop that dog fund, check exactly how much it would cost you to do so, and what fees you’ll face with whatever funds you would prefer to invest in.

Just moving to a new fund can’t be the end of it either.

You must regularly monitor the performance of your money – but not too often – to make sure that it’s delivering the sort of returns you expect.

A winning fund today may be tomorrow’s dog, so keep a watchful eye on how it’s doing, and if standards drop consistently, then it may be time to move on.

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