Time for your wealth manager to go into hiding. It's the Dog Funds list....

A Fund that Beats its Benchmark is a Rare Thing.

Since the turn of the millennium, there have only been 3 years where a majority of active fund stock pickers have beaten the S&P 500 index, and none have been in the last 15 years.

This is why we built TPP, a platform designed specifically to do so.

If Beating the benchmark is the goal, what is at the other end of the spectrum. Well, it’s that time of the year again when Bestinvest tell us exactly who IS at the bottom.

They have recently released their ‘Spot the Dog’ fund list and once again, it doesn’t look good for St James’s Place, Fidelity, Baillie Gifford, Jupiter or abrdn to name a few. Don’t worry, more will be shamed.

The latest Spot the Dog report from investment firm Bestinvest found that 137 active funds, all available to UK investors, have consistently underperformed their benchmark over the past three years. This equates to more than £67 billion in assets under management.

The number of funds that made the list in this biannual edition of the report is the same as six months ago, however Bestinvest says the level of wealth represented by these “misbehaving mutts” has jumped by 26% from £53.4 billion to £67.4 billion.

Around a third of the funds listed are global equity funds, while around a quarter are sustainable, responsible, ethical or impact funds. The runaway performance of the tech sector has created challenges for the former, while higher interest rates and energy prices have been a headache for the latter. But then we’re all dealing with the same problems.

Before we get into the details and who has really let the investing public down, here is how a fund qualifies for ‘Dog’ status.

Bestinvest only analyses UK domiciled and regulated open-ended investment companies (OEICs) and unit trusts that invest predominantly in equities. We also only look at funds open to retail investors. To make it onto the list, we apply two filters. First a fund must have failed to beat the appropriate benchmark index over three consecutive 12-month periods, to highlight consistent underperformance. Second, the fund must have underperformed the benchmark by 5% or more over the entire three-year period of analysis – which in this case ends on December 31, 2024.  (Bestinvest).

Although US tech stocks had a wobble in January when the launch of Chinese chatbot DeepSeek rocked markets, they have delivered sparkling performance in recent years.

Collectively, the Magnificent Seven tech stocks – Nvidia, Microsoft, Apple, Meta, Amazon, Alphabet and Tesla – account for around a third of the S&P 500 index by market weight. This is up from around a fifth at the start of 2023. In particular, stock market darling Nvidia has delivered unprecedented returns.

This has come as great news to investors with exposure to the group – even if it does come with a hefty dose of concentration risk as we’re seeing now. It is less positive for active managers, though.

In a shareholder letter at the start of the year, star fund manager Terry Smith explained the underperformance of his flagship product (Fundsmith Equity) by pointing to this phenomenon. “Our fund owns some but not all of these stocks and it was difficult to perform even in line with the index,” he said.

It is worth pointing out that Fundsmith Equity does not feature in this edition of the Spot the Dog report – although it did in the last. Of course, if investors decide that technology stocks have become overvalued and the sector crashes, active fund managers with less exposure to the sector could be vindicated. Yet even if or when this happens, historical evidence would suggest they still won’t beat their benchmark.

So, which ‘mutts’ have performed particularly badly?

Rather predictably St James’s Place took top (or rather bottom) spot. Sadly for them, and perhaps less predictably, they took 1^st and 2^nd place last year.

The company’s £9.4bn Global Quality fund has underperformed its benchmark by 26 per cent over the past three years and their £5.27bn Sustainable and Responsible Equity fund comes in second place in terms of the largest underperforming funds. That’s over £14 billion held in underperforming funds.

SJP has recently announced the Sustainable and Responsible Equity fund will have a new manager running it from this month who will make changes including “incorporating a more balanced blend of investment styles” and increasing the number of underlying companies it invests in.

Bestinvest said the number of large funds underperforming was a concern, with 15 funds of more than £1bn in size. This accounted for 60 per cent of the overall lagging assets at £40.14bn.

This is an increase on the 10 such funds recorded in the last report which had a combined value of £26.81bn. Among the large funds featured on the list are Lindsell Train UK Equity and Liontrust Special Situations.

The title of overall worst performer in Global equities goes to the ironically titled: Artemis Positive Future. This shocking fund underperformed its benchmark by 63% over three years.

Ballie Gifford took a dirty silver place with its Global Discovery fund which underperformed by 56% with around £437 million.

SJP appears again in overall worst performer with its ‘Global Quality’ fund which has underperformed its benchmark by 26% over the last 3 years.

Other investment houses with Dog Funds are:

AXA, Rathbone, Virgin Money, M&G, abrdn, Jupiter, Allianz, Cerno, JP Morgan, Schroder, Lazard, HSBC, Fidelity, Janus, BlackRock, Aviva, Barclays and Morgan Stanley.

Spot the Dog is not a ‘sell’ list. However, funds that appear in it may require further investigation. It is important to stress that Spot the Dog is not a list of funds that should be sold automatically, as it is based purely on factual analysis of past performance, which is not a guide to how a fund will perform in the future. Having said that, it is often the only indicator we have and funds need to own their mistakes. A lot of investors have missed out on an enormous amount of money due to poor performance.

If you want further information about how TPP aims to beat benchmarks and build absolute portfolios in any climate, please do contact us.

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As the article clearly demonstrates, beating benchmarks isn't easy.

Some of these funds and their performances are embarrassing, but even the high performing funds struggle to beat benchmarks consistently.

At TPP we aim to do this in three different ways.

Our most basic strategy is our slightly leveraged tracker. They follow their benchmark up and down. They're designed not just to beat their benchmarks, but by 1.5 times per annum net of fees.

That's our most basic approach, and as a long term growth tool, they are very hard to beat.

Next up are our 'long or flats'. These buy into the markets when they look like 'value' and move into a 'flat/market neutral' position when they look on the high side. They wait patiently for a market retracement and then they buy back in.

We expect these will outperform our leveraged trackers, but alongside our tracker type products they form the foundations of a TPP portfolio.

Finally, for those wiling to take on a little extra risk we have our 'equity long/short' active strategies. They aim to take advantage of any opportunity they spot. They buy markets, they sell them, they initiate spreads.

Although we expect all three approaches to beat their benchmarks, collectively they work very well together.

Beating benchmarks isn't easy, we just make it look like it is at times!!!

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If you're an investor frustrated with your Dog Funds and are looking for a little more from your investments then reach out to our team.  We'd love to ascertain whether we can assist.

If you're a client of ours, then here is to a brilliant 2025 of beating benchmarks.

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Disclaimer: The views expressed in this article are the author’s own and should not be considered in rendering any legal, business or financial advice.

Past performance may not be indicative of future results. Therefore, you should not assume that the future performance of any specific investment or investment strategy will be profitable or equal to the corresponding past performance.

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