Some 137 equity investment funds holding £53.42bn of client money consistently underperformed their market benchmarks over the last three years, according to Bestinvest’s latest Spot The Dog survey of under-performers.

That’s a fall in the number of funds of 9% from the 151 funds 'named and shamed' in the previous six monthly report published earlier this year.

The amount of investors’ wealth held in underperforming funds has dropped 44% from the £95.26bn recorded early in 2024.

The new report highlighted that managers with low or no exposure to AI-themed stocks and the energy sector, lagged their benchmarks, including numerous sustainable funds.

Global equity funds led the list with 44 funds holding £26.18bn of wealth – a slight improvement on the 51 featured at the start of the year.

The list included 44 UK equity funds (including funds in the UK All Companies, UK Equity Income and UK Smaller Companies sectors) with £11.14bn invested, broadly similar to the last edition of the list but a dramatic rise on the 12 highlighted in August 2023.

To make it onto the list, a fund must have failed to beat the relevant benchmark index over three consecutive 12-month periods, and underperformed the benchmark by 5% or more over the three-year period of analysis.

Funds can endure periods of underperformance for a variety of reasons. Sometimes it will be down to outright poor decision making, but it can also be because a style and strategy that has worked well over the longer run has been out of favour with more recent market trends.

Consistently appearing on the list in recent times have been ESG and ethical funds for a good reason, said Jason Hollands, managing director of Bestinvest by Evelyn Partners which carried out the survey.

He said: “The high number of funds badged variously as sustainable or responsible that feature is likely in part down to the stellar performance of oil and gas stocks in 2021-22. Over the three-year period covered in our latest report, the MSCI World Energy Index delivered a total return in GBP of 98%, well ahead of the MSCI World Index total return of 28%.

“Compare this to the alternative and renewable energy market, which fell out of favour during the post-pandemic surge in energy demand, and the story is very different; The MSCI Global Alternative Energy Index declined by –38% over the same three-year period highlighting why managers focused on green energy have had it hard.”

Looking ahead, he said he expected the number of ESG funds to reduce in the next couple of reports as the effect of surging energy stocks drops out of the data. 

In 2023 and 2024, he said it has it has been the “blistering” performance of names such as microchip maker NVIDIA, Alphabet (which owns Google), Amazon, Meta Platforms (owner of Facebook) and Microsoft that dominated the investment news.

The surprising inclusion of two of Britain’s most prominent and widely-held funds in the last edition of the report, Terry Smith’s Fundsmith Equity and Nick Train’s WS Lindsell Train UK Equity, proved short lived with both funds dropping out of the list this time around.

But 10 'big beast' funds still feature in the list, accounting for £26.81bn and therefore representing half of the lagging assets. That is an improvement on the 15 big funds featured in the last report holding £65.96bn of investors’ wealth, which had included the £25bn Fundsmith Equity fund.

Top 10 worst performing dog funds overall     

Source: Spot the Dog, August 2024  *Performance figures shown are net of fees with income reinvested. 

Top 10 biggest beasts by size   

Source: Spot the Dog, August 2024  *Performance figures shown are net of fees with income reinvested. 

Mr Hollands said: “Once again, the latest Spot the Dog report serves as a timely reminder to investors to check in on their portfolio at regular intervals to assess how well their assets are performing. 

"Identifying whether a fund is struggling with short-term challenges that will later pass, or more deep-rooted issues with long-term consequences is vital for investors considering whether to remove an investment from their portfolio.”