Independent investment manager and financial adviser Best Invest has revealed some new additions to the doghouse in its biannual Spot the Dog report.

The latest Spot the Dog report reveals the presence of 92 underperforming funds so far in 2008, totalling over £19 billion of assets currently under management – a worrying rise of more than 80 per cent compared to the end of 2007.

There has also been a complete change in the top five worst offending fund management groups, with Newton, M&G/Prudential, HSBC Investments, AXA Framlington and Threadneedle all replacing previous offenders and managing £8 billion of 'Dog Funds' between them.

Improvement was shown by previous underperformers Schroders and Scottish Widows, who both culled a considerable proportion of their former Dog assets, but Fidelity, Inveco Perpetual and Aberdeen have been pushed down the ranks by groups that have posted even worse returns.

To qualify as a Dog, a fund will have underperformed its benchmark in each of the past three years or underperformed its benchmark by at least ten per cent over the past three years cumulatively.

Steve Marriot, senior research analyst at Bestinvest, says, ‘When markets are displaying steady returns and volatility is low, it’s hard for managers to go far wrong. All they need to do is keep broadly in line with the market and their performance will be close to their peers. However, when share prices are unstable it only takes a few bad decisions to generate poor performance and turn them into Dogs.’

According to the report, Newton’s Higher Income fund qualifies as the biggest Dog. The sheer size of this one fund – nearly £3 billion – takes Newton to the top of the group offender lists too, along with the £30 million Japan Growth fund.

And while M&G’s own range isn’t entirely dog-free, it’s the funds at parent company Prudential that have thrown this group onto the list, with six out of 11 qualifying as Dogs.

Marriot says, ‘What is most worrying for Pru investors is that their Dog range covers many different sectors including the UK, international and American desks. This suggests a deep-rooted problem and so investors in Prudential funds may want to consider an alternative provider.

Other funds awarded Dog status in this report are HSBC Investments UK £800 million Growth and Income fund and the £300 million Income fund, Axa’s UK Equity Income fund and Monthly Income fund and Threadneedle’s European Select fund – once a flagship for the group.

Hugo Shaw, investment manager at Bestinvest, says, ‘The number of underperforming funds tends to increase along with a rise in market volatility. This year is no exception. We’ve witnessed a rise in the number of UK Dog funds, and a doubling of Dog assets to £12.6 billion. In particular, there has been a marked increase in the number of equity income Dogs, which now account for over half of the assets on the Dog list.
‘The situation is the reverse of the last bear market. Then ‘value’ or equity income funds insulated investors from the worst capital losses as the Technology Media and Telecoms bubble burst, and the Dog List was populated mainly by funds from the IMA All Companies Sector.’

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