Investment warning: The worst performing funds and what steps to take next

Tax: Personal finance expert provides advice on investments

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Knowing if one’s money is being invested effectively is vital in order to decide whether to stick with an investment or move on. To keep the public informed, Bestinvest have published their latest Spot the Dog report, identifying the worst-value investment funds around.

The report has been naming and shaming the most consistently poor performing investment funds available to the public since the mid-nineties.

Unsurprisingly, those working in the industry are not a fan of the report, with Bestinvest dubbing it “the guide fund managers would love to ban”.

However, the report is designed to help the public, as well as the industry as a whole.

It aims to remind investors to keep a closer eye on the funds held in their Individual Savings Accounts and pensions, as well as pressurising fund companies to make changes where required to improve their returns.

77 different funds were identified in the latest report, with £29.5billion tied up in these bad investments worldwide.

In order to collect the most accurate and relevant results, Bestinvest focusses their list on consistent underachievers rather than those that might have had a very short run of bad luck.

They are looking for the funds which have brought worse returns than the market it invests in.

HBOS, which is part of the Lloyds Bank Group, tops this year’s “dog” list with £6.85billion across five funds producing poor returns.

Invesco was knocked off by HBOS after appearing in the top spot for the previous six reports in a row.

However, they still occupy second place with over £5billion across three funds.

Some other groups performing poorly were Scottish Widows, abrdn and Fidelity.

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Jason Hollands, Managing Director of Corporate Affairs at Tilney Investment Management Services explained the potential reasons for funds producing low returns.

He said: “In the Bestinvest Spot the Dog report, we explain that funds can go through a period of poor performance for a variety of reasons.

“For example, it could be that the manager’s approach – which may have worked well over the long run – has not worked well with recent market trends.

He continued: “Some managers look for shares trading at bargain prices or paying dividends, but that hasn’t worked well during periods when sectors like technology stocks have been all the rage.

“In other cases, poor performance ultimately comes done to bad decision making.”

Mr Hollands also offered advice for those looking to make a change and turn around the fortunes of their investments.

He said: “Funds that have lagged can sometimes improve on their own accord.

“That can be down to a change of fund manager, bringing in a new manager with a better track record, or a style coming back in to favour.

“Where there isn’t clear evidence of action being taken, investors can take matters into their own hands and switch into stronger competitors.”

Mr Hollands mentioned the report also outlines the best investments to consider.

He said: “In the Spot the Dog report, alongside naming dog funds we also list Bestinvest’s pedigree picks.

“These are funds selected by our investment managers which we believe will perform well over the long term.

“We have chosen them based on analysis of the fund manager’s track record and approach. In each case we have met them in person and grilled them.”

If investors are considering a transition to other funds, Hollands says it is simple to do so.

He concluded: “Switching funds is very easy to do – especially if you have an online account as it involves a couple of clicks on a mouse – and usually costs nothing.

“Cost really shouldn’t be an impediment to upgrading a fund from a mutt to a pedigree pick.

“It’s inertia that stops people moving out of poor performing funds.”

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