One-third of fund assets on a “Spot the Dog” list of underperforming investment products are run by Invesco, with three of its struggling “dog” funds managed by Mark Barnett, former protégé of stockpicker Neil Woodford.
It was the fourth time that Invesco has topped a twice-yearly list compiled by wealth manager Tilney Bestinvest, which names and shames the worst performing investment funds.
Eleven of Invesco’s funds containing a total £13bn in assets — or one-third of those held in all the struggling funds — have underperformed Tilney’s benchmark indices by more than 5 per cent for the past three years, the report’s threshold for dog fund status.
Notable among Invesco’s funds are three managed by Mr Barnett, the co-head of UK equities at Invesco. Mr Barnett’s high income, income and UK strategic income funds were Invesco’s worst performers, according to the “dog” list, with three-year losses of between 17 and 18 per cent.
Jason Hollands, Bestinvest managing director, said: “Invesco’s UK equity business has a value style bias in its mandate,” adding that it shared some holdings in common with funds run by Mr Woodford that were suspended last year.
“That investment style, focused on cheap companies, has not been rewarded by the market in recent years.”
According to the report, the value of £100 invested in Invesco’s High Income fund three years ago is worth just £99.70 today.
Invesco said UK investments had suffered from low valuations relative to their international peers. “This has weighed on performance on our UK funds, which are value orientated and actively invested,” it said.
“The vast majority of the UK equity portfolios managed by Mark Barnett are made up of different securities from those that had been held by Woodford Investment Management,” it said.
Notable among this year’s underperforming funds is the LF Woodford Equity Income fund, with a 46 per cent loss capping a dismal period for Mr Woodford. The fund was first identified as a “dog” by the study a year ago and was suspended in June, trapping investors.
The number of funds qualifying as “dogs” has risen by 54 per cent since the last report in August 2019, with 91 funds managing £43.9bn between them, up from 59 funds.
While most of the funds in the report are small — the median fund value is £132m — 11 funds featured are worth over £1bn, including examples run by M&G, Hargreaves Lansdown and St James’s Place. The M&G Recovery fund underperformed by 15 per cent; the £2.7bn HL Equity Income fund, which backed the Woodford Equity Income fund, underperformed by 8 per cent; and St James’s Place UK High Income fund had negative returns of 24 per cent.
The report also underlined the difficulties of North American funds, as 30 per cent of the US equity funds available to UK investors appeared on the dog list. The largest North American fund to make the list is run by JPMorgan, whose £3.8bn Equity Income fund slid by 8 per cent over three years.
US funds typically have individual styles, and funds with a strategy favouring established companies and high dividends have struggled as fast-growing tech stocks have shone in recent years. “Ultra-low interest rates around the globe have been rewarding to growth companies, so the market hasn’t really valued the classic value stocks with dividends,” said Mr Hollands.
“[The US] is a notoriously difficult market for active managers to outperform. You have to be really good or really lucky to consistently beat the market in the US.”
Baillie Gifford was among the stars of this year’s report, which highlighted the fund house’s market-beating performance. The Baillie Gifford Global Discovery fund boasted a 36 per cent return over three years.
The UK-based Baillie is heavily invested in US technology companies such as Tesla, which have seen strong performance in the past few months.
Mr Hollands said: “They are riding very high in terms of performance. But how long will growth continue to trounce value? No trend continues forever.”
Other dogs included equity funds run by St James’s Place and Hargreaves Lansdown. The SJP high income fund was managed by Neil Woodford for most of the period covered by the report, while Hargreaves’s Multi-Manager Income and Growth fund was affected by its backing of the now-gated Woodford Equity Income fund.
While the report only considers performance over a three-year period, Hargreaves said: “The HL Multi-Manager Income and Growth fund has a good long-term track record and £10,000 invested in Income and Growth for the last 10 years would now be worth £21,952 — a gain of 119.5 per cent.”
The fund manager blamed political uncertainty and Brexit for the poor performance of UK equities.
This is the last time that the Woodford Equity Income fund will appear in the report, as its administrator Link Fund Solutions winds it down. Link made the first payout to investors at the end of January.
“It’s so important to look behind the name and the past record [of a fund],” said Mr Hollands.
“While this has been a shocking and highly unusual saga, it is an important reminder of how incredibly important it is regularly to review your investments and potentially to make changes.”
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