Struggling hounds: Over 300 investment funds are trailing their respective benchmarks

Struggling hounds: Over 300 investment funds are trailing their respective benchmarks - should you offload your shares?

A recent report by investment platform Bestinvest has highlighted a concerning trend in the investment world, with 137 equity investment funds collectively holding £53.42 billion of investors' wealth consistently underperforming their relevant market benchmarks over the past three years as of the end of June 2024.

The report, known as the Spot the Dog, has found a 9% fall compared to the 151 'horrid hounds' in the previous report in March 2024. This represents a 44% drop compared to the £95.26bn in assets in the previous report. One area of concern highlighted by the report is the presence of ten "Great-Dane sized funds" that account for half of the lagging assets.

The Baillie Gifford Global Discovery Fund and the FTF Martin Currie Japan Equity fund have underperformed by 65% and 64% respectively over the past three years. The Artemis Positive Future Fund, the IFSL Marlborough Global Innovation Fund, and the AXA ACT People & Planet Equity Fund have also underperformed by 71%, 51%, and 53% respectively during the same period.

Interestingly, around a quarter of the underperforming UK funds are ethical and sustainable funds due to their lack of exposure to the UK market's sizeable energy and commodities sectors. This suggests that the surge in oil and gas-related shares during this period has not benefited these funds.

The report also points to the dominance of the technology sector in the stock market, with a big concentration on artificial intelligence and the Magnificent 7 in the US. Much of the rise in stock markets has come from technology and energy stocks, which have performed exceptionally well over the past three years.

In contrast, the MSCI World Energy Index delivered a total return in GBP of 98% over the three-year period covered in the latest report, well ahead of the MSCI World Index total return of 28%. This indicates that funds not fully exposed to this handful of companies have struggled to keep pace.

Environmental, social, and governance (ESG)-focused funds make up a fifth of the Spot the Dog tally, suggesting that the underperformance is not limited to traditional investment strategies.

Investors with money in these underperforming funds may want to reconsider their investment strategies to avoid missing out on potential returns. It is always important to regularly review and adjust investment portfolios to ensure they align with individual investment goals and market conditions.