The amount of investors’ cash invested in underperforming “dog” funds has plummeted since August, as stock markets around the world recovered from the turbulent last half of 2011.
Around £9.25 billion ($14.7 billion) worth of funds in the U.K. are now in dog funds — which underperform their benchmark for three consecutive years by a cumulative 10 percent — down from £13.78 billion in August 2011, according to the biannual “Spot the Dog” report from investment adviser Bestinvest.
Funds invested in North American and emerging markets performed much better than Europe-focused funds, according to the survey. This echoes the wider investment environment, where the euro zone’s sovereign debt problems have continued to weigh European equities down, while improving economic signs have emerged from the U.S.
Scottish Widows had the highest amount of assets under management in dog funds, with three U.K.-focused funds causing problems despite the recent improvement in the FTSE . It was followed by M&G, the U.K.’s second-biggest fund manager measured by assets under management, which was dragged down by the performance of its M&G Dividend Fund.
Schroders was ranked third worst, while Standard Life came fourth on the list.
St. James Place, which has suffered in the past from a scandal involving former senior partner Peter Carron, was in fifth place.
“There are still some managers who have not woken up to the new market conditions,” Adrian Lowcock, senior investment adviser at Bestinvest, said in a statement. “Whilst the number of dogs has fallen, there are still a huge number of funds which underperformed their benchmark by 10 percent over 3 years.”
He added: “Charges remain a key concern to investors and with dog fund managers taking home £133 million a year, nearly £400 million over the three years they have been underperforming, it is hardly surprising investors are concerned about fees.
“With markets trading in a range it has never been more important for investors to take a close look at who is supposed to be managing their funds to make sure that their money is working as hard as possible for them.”
The Bestinvest analysis of dog funds excludes funds that don’t have three-year track records, fixed interest, property, absolute return, and specialist sectors such as "fund of funds," insurance, offshore, institutional, and pension funds.