FTSE 100 manager St James’s Place has argued its dubious honour of “worst behaved dog in the UK Equity Income kennel” was unfair because the Tilney Bestinvest analysis was net of charges, including ongoing advice, and “therefore these analyses do not make accurate like-for-like comparisons”.
The SJP UK High Income fund was one of nine dogs in the UK Equity Income universe, which totals 70 funds, and the only fund in the sector to lose investors money over a three-year period.
The Spot the Dog report noted it had underperformed its benchmark by a “whopping” 30% over the last three years, with investors now holding £90 for every £100 ($120, €107) they invested three years ago.
“Perhaps we shouldn’t be surprised – up until recently the fund was run by Neil Woodford, who has had a torrid run of performance over the last few years,” the report said.
An SJP spokesperson said: “Our clients invest into tailored portfolios typically comprising six to 10 of our funds, as part of our distinctive investment management approach. We continually assess our managers and are well positioned to make changes quickly when appropriate, as shown recently with the UK High Income fund.”
SJP said in a statement that its funds have outperformed their relevant benchmarks circa 84% over all rolling five year periods since inception in 2011.
Woodford’s double appearance
Woodford’s former SJP mandate was not the only time the fallen star manager appeared in Spot the Dog. His suspended Woodford Equity Income fund bottomed the IA UK All Companies sector by losing investors 20% over the last three years.
That represents 38% of underperformance.
A Woodford spokesperson said: “Neil will continue to focus the fund’s portfolio towards the few areas of the market which continue to offer valuation appeal and to the economic regions that appear to have enough internal momentum to withstand the growing global headwinds.
“Admittedly, this strategy has not delivered the returns we had anticipated over the past couple of years but identifying situations where price and value diverge has been at the centre of Neil’s disciplined investment approach for more than thirty years. This investment strategy continues to determine a portfolio that he believes is appropriate for the economic and market environment that confronts us.”
Because Woodford’s “beast” of a fund holds £3.7bn, which is currently trapped until December due to its suspension, it is the second worst fund house for total AUM in the doghouse, the Spot the Dog report said.
Invesco blames value for time in the doghouse
It was Woodford’s former employer Invesco which landed the shameful honour of the most AUM in dog funds.
The report said the “repeat offender has been crowned top dog for the third edition in a row”, with a total £11bn of assets across six dog funds.
The bulk of those assets are run by Woodford protégé Mark Barnett, who manages three funds in the doghouse, including the largest, the Invesco High Income fund, according to the latest report. Tilney attributed his “torrid” performance of late on value being “deeply out of fashion”.
An Invesco spokesperson blamed Brexit for underperformance in its UK equity strategies.
“The UK stock market continues to be undervalued in our view with many UK domiciled companies trading at very low valuations relative to their global peers. The market’s preference for predictability of revenues and earnings has produced a divergence in valuations that we believe is extreme. Moreover we believe that a reversion to traditional valuation metrics will occur.”
However, Invesco funds also featured in other sectors outside UK equity income.
Regarding the European Opportunities fund, managed by Adrian Bignell and John Surplice, the Invesco spokesperson said “substantial gains await the patient investor who is willing to look away from bond proxies”.
On Invesco Japan, managed by Paul Chesson and Tony Roberts, they said the fund is focused on cyclical sectors such as auto manufacturers, banks, real estate and energy, which have suffered a “significant derating”.
Fidelity and Janus Henderson rising up dog ranks
Fidelity International showed up in the worst-10 offenders based on AUM after an 18-month absence thanks to the Moneybuilder Dividend, Enhanced Income and American Special Situation funds.
A spokesperson for the company said the first two funds’ three-year track records had been hit by “an unfavourable market backdrop” in which defensive income-paying sectors like utilities and telecoms have underperformed. But they said both funds continue to provide investors with “an attractive and growing level of income” with Moneybuilder Dividend yielding 5.0% and Enhanced Income yielding 7.3% as at 30 June 2019.
Fidelity American Special Situations also suffered due to its defensive positioning as investors continued to clamour for growth and momentum stocks which have driven gains in American markets since early 2017, the spokesperson added. The fund has zero exposure to the Faang tech giants which manager Angel Agudo believes might not be the frontrunners in coming quarters.
“Fidelity manages 34 UK domiciled active funds covering a range of styles, geographies and asset classes, the majority of which have outperformed their benchmark over three and five years, and are adding value to investors,” they said. “We take extended periods of underperformance very seriously, and constantly monitor and review our fund range to make sure it meets the needs of our investor base.”
Fund houses in the dog house
| Group | Number of dogs | Value of dogs |
| Invesco | 6 | £11bn |
| Woodford Investment Management | 1 | £3.7bn |
| Janus Henderson | 3 | £2.8bn |
| St James’s Place | 2 | £2.1bn |
| Fidelity | 3 | £1.9bn |
| Blackrock | 1 | £1.6bn |
| HSBC Investments | 4 | £1.3bn |
| Aberdeen Standard | 5 | £1.3bn |
| Canada Life | 5 | £1.1bn |
| Somerset Capital Management | 1 | £892.9m |
Source: Bestinvest/Lipper (30 June 2019)
Janus Henderson tied Fidelity for number of dog funds, climbing from sixth place from January to third in Tilney’s rankings. It has three repeat offenders in the kennel – the Janus Henderson Global Equity Income and Janus Henderson Emerging Markets Opportunities funds as well as the much larger £1.8bn Janus Henderson European Selected Opportunities fund.
Bestinvest noted MI Somerset Emerging Markets Dividend Growth and BlackRock Continental European Income, which both feature in Spot the Dog, also appear in its best buy list.
The report stated: “Spot the Dog isn’t a list of funds that we think you should sell automatically – it’s a statistical analysis of how funds have performed over the last three years. And while these funds have underperformed the markets over the last three years, we still maintain our conviction that they can deliver for investors over the long term.”
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