Investors who fail to regularly review their funds investments are losing thousands by leaving cash invested in underperforming funds, a new report has revealed.
The amount of cash in badly-performing so-called ‘dog’ funds has almost doubled in the past year, from £7.2bn on 31 December 2008 to £14.22bn at the end of September 2009.
The report, by the UK investment manager Bestinvest, highlights those funds which have over the past three years consistently failed to beat the stock-market indices they aimed to outperform. To qualify for the ‘dog’ label, an investment fund must also have underperformed its index by at least 10 per cent over three years, on a cumulative basis.
The Bestinvest report highlights 78 investment funds that qualify by these criteria as underperformers.
Most alarmingly, this means that 11.6% of all actively managed funds in the UK market are now in the ‘dog’ category.
The report examined all UK-registered open-ended retail funds, such as unit trusts and OEICs.
The report has highlighted a high degree of ‘investor inertia’ in failing to work with their financial adviser to monitor their investments, and revising their financial planning by switching to better performing funds.
In response to the report, financial experts have defended the concept of actively managed funds, where a fund manager is in place who makes decisions on investing the fund across a spread of asset classes, in order to minimise risk. An active fund manager can respond to signs that markets are about to fall, by moving the investments into cash or other safe assets.
This is in contrast to passively managed ‘tracker’ funds, which do not have a fund manager, and seek to mirror or follow an index, but not to beat it. A tracker fund is, therefore, compelled to follow the markets, no matter whether the direction be up or down.
