Schroders accounted for nearly a quarter of all mutual funds listed in a report as persistent underperformers last year, with funds it manages on behalf of Halifax and Scottish Widows showing little sign of a turnround.
The latest “Spot the Dog” study, published by investment platform Bestinvest, owned by wealth manager Evelyn Partners, found the total number of mutual funds listed as underperforming rose from 31 in August 2022 to 44.
Monetary tightening in the second half of 2022 damped recovery among mutual funds, with the total amount of assets held in “dog” funds increasing by 78.5 per cent from £10.7bn to £19.1bn, according to the report. The number of outsized funds in the list — those holding over £1bn — doubled in the six-month period.
“There has been quite a transition in markets over the past year. Up until 2021, growth investing was leading the way,” said Jason Hollands, managing director at Evelyn Partners. He noted a number of funds focused on value had made headway as managers heavily weighted towards UK small and mid-cap companies were punished.
The turning tide reversed the fortunes of several asset managers and put extra pressure on others that regularly underperformed.
Columbia Threadneedle had four funds in the “dog” list with £184mn under management. Hargreaves Lansdown’s £1.8bn Multi-Manager Special Situations trust was included, as was St James’s Place’s £2.2bn International Equity fund.
Funds which invested in growth stocks did poorly, as the tech boom faltered. Small to mid-cap companies were particularly exposed to the impact of rising inflation and interest rates. But asset managers focused on value stocks, such as consumer goods makers, performed well as did those who bought into resources companies.
Around 900 UK mutual funds with a combined value of £611bn were screened by Bestinvest. Any funds which underperformed an appropriate index by at least 5 per cent over a three-year period were labelled “dogs”, with most compared with the MSCI UK All Cap Index.
Schroders-managed funds accounted for 10 of the 44 “dogs” in the report, with about £7.5bn in assets under management. This included three branded Halifax and four under the Scottish Widows name, which are now managed by Schroders. According to the report, the value of £100 invested in Halifax’s Special Situations Fund three years ago is now worth just £84.
Schroders said: “We regularly review our investment performance to ensure that our funds continue to meet the needs of our clients and remain focused on navigating any short-term market volatility.”
However, some investment groups appear to have reversed their fortunes, with Invesco holding only two underperforming funds having topped the list for several years with as many as 11 funds.
Invesco said: “[Performance] has been notably better as we approach three years under management of Ciaran Mallon and James Goldstone.”
The returns on actively-managed funds need to be weighed against fees, Hollands said, adding that the upcoming new tax year was an opportune moment to reassess portfolios. He cautioned investors to look again at funds which have undergone management changes.