The amount of UK investors’ money stuck in poorly performing funds has jumped by more than a quarter over the past six months, according to new research by wealth manager Bestinvest.
The level of wealth held in so-called “dog” funds has risen to £67.4bn, up from £53.4bn six months ago, its latest “Spot the Dog” report shows.
The wealth manager described the large increase as “concerning” and pointed to a jump in the number of funds that manage more than £1bn in the ranks of the worst performers.
Among them is Lindsell Train UK Equity, run by veteran investor Nick Train, which manages £2.7bn and has been ranked one of the worst performing of the large funds over the past three years.
Train, one of the UK’s most renowned stockpickers, has underperformed the fund’s benchmark by 18 per cent over three consecutive 12-month periods.
The manager has repeatedly apologised for recent performance, even though his fund has delivered 430 per cent growth since it launched in 2006, beating the FTSE All Share’s 189 per cent over this period.
Some of Train’s top holdings include fashion brand Burberry and drinks company Diageo, whose shares have come under pressure over recent years.
The report showed the largest fund to have delivered the worst performance was St James’s Place Global Quality, which manages £9.4bn and underperformed its benchmark index by 26 per cent over three years. SJP’s Sustainable and Responsible equity fund, which runs £5.3bn, was the second worst, underperforming by 24 per cent.
But the worst overall performers were some of the smaller funds. Artemis Positive Futures, which has about £6mn in assets and focuses on investing in companies that have a positive environmental or social impact, underdelivered by 63 per cent — placing it at the bottom of the rankings.
Bestinvest noted that funds labelled as having sustainable, responsible or ethical investment qualities have featured heavily in the report, representing a quarter of a total 137 “dog” funds.
“The financial markets have been unsympathetic to funds with ESG properties in recent years, in part because of soaring energy prices but also owing to negative returns from alternative energy shares both in 2023 and 2024,” said Jason Hollands, managing director of Bestinvest, which is owned by Evelyn Partners.
He noted that during the three years until the end of last year, the MSCI World Energy index delivered a total return in sterling of 71.3 per cent, well ahead of the broader MSCI AC World Index total return of 28.6 per cent.
“Compare this to the alternative and renewable energy market, which fell out of favour during the post-pandemic surge in energy demand, and the story is very different,” Hollands said.
The MSCI Global Alternative Energy index declined by 48.8 per cent over the same three-year period, “highlighting why managers focused on green energy may have faced some challenges”, he added.
The report noted that the past few years had been a particularly challenging period, with rising inflation and a surge in energy prices following Russia’s invasion of Ukraine in 2022.
In terms of the worst-performing sectors, Bestinvest said funds backing UK smaller companies had the highest proportion of “dog” funds as a percentage of the sector’s size.
Some 15 large products, each with more than £1bn in assets under management, accounted for £40bn, or 60 per cent, of the lagging funds overall.
This compares with 10 large funds in the last report six months ago, which had a combined value of £26.81bn.
Commenting on recent performance, Lindsell Train said: “The concentration of the portfolio has worked against [the] fund in recent years, but in the past it has produced market-beating returns and we are sure it can do so again.”
SJP said: “We’ve recently made improvements to both funds which will take time to feed through to performance.
“Currently, our fund performance is calculated after the deduction of a single ongoing charge that covers the cost for external fund management, administration and financial advice.
“This creates an additional hurdle when comparing performance with other funds in the market,” noting that these charges will be separated later this year.
Artemis said: “This is a £6mn fund that was launched in April 2021 with a focus on companies making a positive difference to the world. Many of these were promising smaller companies with potential to be disruptive and the capacity to grow exponentially.
“But these tended to be early-stage companies carrying larger levels of debt. Soaring inflation and interest rates have hit this kind of company hardest.”
Artemis added that it has also had a new team in place running the fund since early last year.