Spot The Dog - Spring 2015

The guide fund managers would love to ban | 2015 Volume I

Spot the Dog

3 Introduction

4 Research highlights

5 How we identify dog funds

6 Should you switch out of a fund if it is a dog?

7 How to read the data

8 Fund groups in the doghouse

9 UK All Companies dogs

10 UK Smaller Companies dogs

11 European dogs

12 Global Emerging Markets dogs

13 Asia Pacific dogs

14 North American dogs

15 Japanese dogs

16 Global dogs

18 Is it time to take a hard look at all of your investments?

CONTENTS

Please note that Spot the Dog is intended purely as a representation of statistical data. The value of investments, and any income derived from them, can go down as well as up and you may get back less than you originally invested. Prevailing tax rates and relief are dependent on your individual circumstances and are subject to change. If you are unsure about the suitability of any investment, you should seek professional advice.

ABOUT US

Tilney Bestinvest is a leading UK investment and financial planning firm that builds on a heritage of more than 180 years. We look after more than £9 billion on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.

Headquartered in Mayfair, London, we employ almost 400 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients. Whatever approach you want to take, we can help.

If you prefer to make your own decisions, you’ll find everything you need to make the most of your investments on our Bestinvest website. In 2014 we were voted Best Online/Execution-only Stockbroker by readers of the Financial Times and Investors Chronicle.

We also offer investment management and advisory solutions, as well as bespoke financial planning, through our broader Tilney Bestinvest group. If you want assistance with retirement and Inheritance Tax planning, for example, our nationwide team of experts is there for you.

The Financial Times and the Investors Chronicle voted us Stockbroker of the Year and Best Low-cost SIPP Provider in 2014 and Wealth Manager of the Year in 2013. However, we draw greatest pride from the fact that our biggest source of new business is personal referrals from existing clients.

We hope that we can help you and your family and look forward to welcoming you as a client.

Peter Hall CHIEF EXECUTIVE

Mayfair office, London

Wealth Manager of the Year

Best Wealth Manager

for Investments

Best Low-cost SIPP Provider

Best Online/Execution-only

Stockbroker

Stockbroker of the Year

Self Select ISA Provider

of the Year

Best Wealth Manangerfor Investments 2013

Best Wealth Manangerof the Year 2013

2 Spot the Dog 2015 Volume I

IntroductionWith interest rates on cash savings having languished at record low levels in recent years and bonds offering meagre income, UK investors have rediscovered their love of the stock market by ploughing more of their hard earned cash into equities. Indeed, rising stock markets around the globe have rewarded investors with juicy returns over the last three years.

Yet generally rising markets have also helped mask the relative poor results delivered by many fund managers whose portfolios have been lifted with the tide. For investors, rising valuation statements on these funds may give the superficial impression of a job well done, but once the impact of lucrative fees is factored in, these funds may have seriously lagged the markets.

While fund management companies like to crow about their star managers and whatever funds in their ranges happen to be doing well currently, the reality is that many of them will have a few skeletons in the closet that don’t get mentioned in their advertising campaigns. The financial services industry has an unfortunate habit of overpromising and under-delivering. When all is going well, funds are heavily promoted and their managers are feted like rock stars of the City. Yet some of these turn out to be shooting stars who got lucky, finally crashing out of orbit.

It is a simple fact that many funds fail to beat their benchmarks over the long-run after all the fees have been taken. Investors need to be choosy about who they entrust their money to.

Surprisingly, many investors continue to put up with weak or pedestrian performance and it is the fund management companies that benefit. This suffering in silence can be a result of investors not reviewing their investments periodically, a lack of ongoing advice or information from the adviser who may have originally recommended the investment, or simply inertia and lack of interest.

Yet with many set to rely on the returns from ISAs and pensions for future financial security, performance really does matter.

For two decades, we have campaigned to raise awareness of poor fund performance by shining a spotlight on those funds that are amongst the worst performers through our landmark Spot the Dog report. It is widely recognised as the UK’s definitive guide that names and shames those funds that have consistently and significantly underperformed. The term ‘dog fund’ has now entered the lexicon of the UK financial services. Unsurprisingly, Spot the Dog doesn’t win us any popularity awards with fund management companies who invariably howl

out a litany of excuses. However, we believe it does put pressure on them to address problems.

Unfortunately, Spot the Dog only represents the tip of the iceberg in terms of funds that disappoint, as the filters we have applied (explained on page 5) are designed to quarantine the very ‘worst of the worst’. For every fund highlighted in the report, there are many more that are also underachieving.

The message of Spot the Dog is simple: no matter how thoroughly you research your choices ahead of investing, the fate of funds and managers can change over time and many fail to deliver. If you are going to invest in actively managed funds, it is vital to closely monitor them or choose a service that will do this for you.

Spot the Dog 2015 Volume I 3

Research highlights• Our filters have identified 60 dog

funds (unit trusts and OEICs) in this edition of Spot the Dog, up from 49 six months ago. The level of assets in these funds is £23 billion, up slightly from the £19.6 billion in our last report.

• The Investment Association sector with the largest number of dog funds remains the Global sector, with 19 funds representing 15% of the universe.

• However, the sector with the highest ratio of dogs as a proportion of the universe continues to be the North America sector, where 12 dog funds in the kennel represent 20% of the sector universe.

• In our last report not a single Europe ex UK fund met our criteria, but in this edition four howlers have been snared.

• Groups with large fund ranges are inherently more likely to feature in Spot the Dog, since few companies are consistently good across the board. Most groups with funds in Spot the Dog have just one or two offenders. However in this edition, fund giant Aberdeen finds itself managing nine funds, up from just one in the previous issue. Only one other firm – Neptune – has multiple funds (five) in this edition.

• When ranked by the level of dog fund assets under management, the unwanted trophy of ‘Top Dog’ remains with M&G due to the continued woes of its former flagship M&G Recovery fund and its M&G Global Basics fund. Together these giants account for 34% of all of the dog fund assets listed. In second place is BNY Mellon subsidiary Newton whose two funds included represent 21% of total dog assets.

• Schroders can bark for joy as the blue chip fund house has finally escaped inclusion in the table of top offenders, thanks to its sizeable and overwhelmingly institutionally-owned QEP Global Active Value fund narrowly missing our filters.

• On a positive note, not a single UK Equity Income fund has been awarded a dog fund label with even the average fund in the sector having outperformed the UK stock market in each of the last four 12-month periods.

• While many groups will from time to time have a mutt in their fund range, notable absentees amongst larger groups include: Henderson, Invesco Perpetual, JO Hambro CM, JP Morgan, Legal & General IM, Liontrust, Royal London, Standard Life Investments and Threadneedle.

4

Our dog ratings are based solely on statistical criteria relating to a fund’s past performance. Here we explain the methodology.

Over the last couple of decades the fund management industry has become increasingly competitive. Markets trade globally around the clock, information is available within seconds and large companies in particular are analysed in detail by scores of analysts at banks, brokers and fund managers all of whom are trying to find an edge. It is unsurprising then that fund managers need to be really good just to be average. If you are going to invest in actively managed funds, you need to be very selective in choosing those managers with the skill to deliver superior returns that justify their fees. Most fund managers do not achieve this over the long term.

Spot the Dog is focused on identifying those funds that warrant special attention because they have performed particularly badly compared to their benchmark over a reasonable time period and consistently so.

How we identify dog funds

OUR UNIVERSE

• We analyse UK domiciled and regulated open-ended investment companies (OEICs) and unit trusts that invest predominantly in equities as this is where the greatest differentials in performance between funds occur.

• We only consider funds that have share classes that are open to retail investors, stripping out those only accessible to institutional investors.

• We do not include investment trusts or investment companies as their share price performance may not reflect the net asset value performance delivered by the fund manager due to discounts or premiums. We do however research and rate investment trusts and we make our research available to investors.

• We exclude funds of funds/multi-manager funds because of the absence of like-for-like benchmarks.

ESTABLISHING A BENCHMARK

To assess the performance of a fund, we need to compare it with a suitable benchmark. In most cases this will be an index that represents the overall movements in the market that the fund operates in. For example, for most UK equity funds the comparison will be against the FTSE All-Share Index but for more specialist funds, such as those that focus on smaller companies, we allocate a more appropriate index. We try to identify whether the performance of the fund after charges has added or detracted from the returns delivered by general movements in the benchmark. Every fund group allocates a benchmark to each of their funds; this is usually a market index but sometimes a peer group of competitor funds or a measure such as a target return above inflation or interest rates is used. In most cases we will use the benchmark set by the fund group but we will occasionally override this. For example, we think it is wrong for a fund that has a remit to focus on FTSE 250 index stocks to be compared with the broader FTSE All-Share index.

DEFINITION OF A DOG FUND

We apply two filters to identify dog funds. First we filter the fund universe to identify those that have failed to beat their benchmark over three consecutive 12-month periods. This filter is used to highlight those funds that have consistently underperformed and to strip out those that may simply have had a short run of bad luck. However, if this was the only filter it would generate a huge list of funds including all index trackers as these are bound to regularly underperform at least slightly due to their charges, which the index does not have. We therefore apply a second filter: the fund must have underperformed its benchmark by 10% or more over the entire three-year period of analysis.


It is important to stress that Spot the Dog is not a list of funds that should be automatically sold, as it is based purely on factual analysis of past performance which is not necessarily a guide to how a fund will perform in the future. Indeed there may be good reasons to believe the future prospects are better. For example, there are many different ways of investing and some funds have distinctive styles or investment approaches that can go through periods that are deeply out of step with the current markets, but could be about to come back into favour. Some managers are better suited to tougher times, others to rising markets.

It can also be the case that action is underway to improve performance. For example if a new fund manager with a strong, proven track record elsewhere is appointed or a change of investment approach is now being applied to a fund that has historically underperformed, performance could be turned around.

So, Spot the Dog is not a ‘sell’ list. However funds that appear in it do require further investigation. Unless there are good reasons to believe performance will turn around based on an assessment of its prospects, it may make sense to switch to a pedigree picks fund. Bestinvest has been assessing fund managers for more than 20 years and our fund research team, which is one of the largest in the industry, has developed a number of proprietary techniques to distinguish the top pedigree funds from the mutts. This includes both statistical and qualitative analysis and involves hundreds of fund manager interviews each year.

There are many reasons why funds go through periods of poor performance. Deciding whether to stay invested or switch is all about assessing its future prospects and whether you might be able to do better elsewhere.

Should you switch out of a fund if it is a dog?

For each sector where we highlight dog funds, we also provide a comparison with the pedigree picks of our research team. However, there is no certainty that funds that meet our rigorous criteria today are destined to outperform in the future. Indeed, in the interests

of transparency these 60 dog funds include five that hold a Bestinvest buy rating – Aberdeen World Equity Income, Aberdeen World Equity, Newton Global Higher Income, Aberdeen Ethical World Equity and Legg Mason US Smaller Companies.


IN THE DOGHOUSE3 year return

on £100

Relative 3 year

return %

1st year return

2nd year return

3rd year return

4th year return

5th year return

X X X X X X X X

How to read the data

A summary of the sector. The number of dog funds is expressed as a proportion of the number of funds in the dog universe and by their total value.

This shows the performance of the benchmark index over three and five years. When reviewing the dog funds, we compare the three-year return of the index with the three-year return on £100 invested.

Full name of the dog fund. Funds are listed in order of poor performance (see next column).

These two columns show the performance of the fund over the last three

years. The second column is performance relative to the

stated benchmark. The lower the figure, the

worse the fund.

Discrete total return (income reinvested) one-year performance is shown across these five columns. Each figure shows what the value of a £100 investment made at the start of the period would have been at the end of the period, so a figure of less than 100 represents a loss and a figure above 100 represents a gain. For example, 1st year return is the year to 31 December 2014, 2nd year return is the year to 31 December 2013.

PEDIGREE PICKS3 year return

on £100

Relative 3 year

return %

1st year return

2nd year return

3rd year return

4th year return

5th year return

X X X X X X X X

The funds listed in this section are Bestinvest’s current top-rated funds in the sector which have track records of at least three years. These ratings by our research team are based on both statistical and qualitative assessment of the current fund management teams and does not indicate that these funds are the top past performers.

BENCHMARK 3 YEARS 5 YEARS

FTSE All-Share X X

WATCH DOG UNIVERSE DOGS %

Number of Funds X X X

Value of Funds (£mn) X X X


Fund groups in the doghouseBelow we expose the fund houses that are the main culprits in this edition of Spot the Dog.

M&G

Once again Prudential-owned M&G is the largest manager of dog funds as measured by assets under management, with two heavyweight flagship funds – M&G Recovery and M&G Global Basics – accounting for 34% of total dog fund assets. As we pointed out in the last issue of this publication, large dog funds can take time to tame.

This is certainly proving to be the case for both of these funds, whose fall from grace has only gathered pace into the second half of 2014. In both instances the funds have been guilty of poor stock selection and negative contribution from sector exposures, in particular energy, materials and industrials. Rumours that M&G stands for Mutts and Growlers are greatly exaggerated.

BNY MELLON

BNY Mellon is a new heavyweight entrant to the Investment Group dog list with the inclusion of two funds managed by Newton, its thematic investment business. Most of its dog assets relate to a flagship product – its £4.5 billion Newton Global Higher Income Fund. A key factor here has

GROUPNumber of dogs Value of dogs

(£mn) Previous Spot the Dog

ranking

M&G 2 £7,944.77 1

BNY Mellon 2 £4,860.57 N/A

Aberdeen 9 £1,581.98 8

Fidelity 1 £990.29 20

Santander 2 £974.72 N/A

St. James’s Place 2 £902.72 10

Baillie Gifford 2 £781.30 N/A

Morgan Stanley 1 £606.29 N/A

Neptune 5 £555.94 4

Majedie 1 £405.65 N/A

No Unauthorised Copying

been a more cautious approach by the manager at a time when developed markets, notably the US, surged to new peaks. In its defence, the fund has only modestly underperformed its Investment Association peer group over the three-year period, but this has been sufficient to push it into the dog camp against the broader MSCI AC World Index.

The smaller Newton Oriental Fund is the other culprit. The fund has struggled to find form in spite of a change in the lead manager in March 2014. As a house, Newton is generally taking a more cautious view of the macro and market backdrop and its funds are positioned accordingly.

ABERDEEN

Acquisitive fund house Aberdeen Asset Management has long been one of the dominant forces in Asia and Emerging Markets investing and has rarely been prominent in previous editions of Spot the Dog. However, nine funds now managed by Aberdeen have dragged their tails into the doghouse: one European, three global, one North

American and two UK, topped with two funds it manages for other firms (Scottish Widows and Halifax) run using the house’s UK strategies.

To be fair, the Aberdeen UK Opportunities fund, Halifax Special Situations and Scottish Widows UK Select Growth were taken over by the Aberdeen Pan European team very recently following an acquisition, so we watch to see if these unruly hounds can be brought to heel under a new master.

In the case of the global funds, a key contributing factor to their underperformance over the last three years has been a structural underweight exposure to North America in comparison to the index. The US has been one of the best-performing stock markets over the last three years, reaching a record high. Whether the group decides to shift its asset allocation, or if the current positioning will turn in the group’s favour, remains to be seen.

FIDELITY

Fund giant Fidelity owes its place in the kennel to a single fund; Fidelity American, a serial offender. However, change is already underway, with Peter Kaye, its new manager appointed in 2013, tasked with turning the fund’s performance around. 2015 will be a key year for Kaye to demonstrate that there is life in this old dog yet.

SANTANDER

Santander owes its presence to two very similar funds – UK Growth and N&P UK Growth, both former Abbey National funds and both run by Richard Moore.

Abbey National was no stranger to the dog kennel, but its funds were brought under the Santander brand in 2007.

In the case of these two it seems little has changed under Spanish ownership. Perhaps the manager has been taking too many siestas?

IMPORTANT INFORMATION

All data in this report are sourced from Lipper for Investment Management (31 December 2014)


Below we expose the fund houses that are the main culprits in this edition of Spot the Dog.

UK All Companies dogsBy far the biggest fund in the UK doghouse is M&G Recovery. The fund takes a long-term approach that requires patience, and invests in often-troubled businesses it expects to turn around. However, in recent years it’s the fund itself that has been suffering. It was once a top performer and a mainstay of our buy list but we downgraded it following a sharp decline in its returns. Its problems may be exacerbated by its large size – at its peak in 2012 it was a Great Dane-sized £8 billion. Despite shrinking to just over £5 billion M&G Recovery has failed to recover. In fact, this dog seems to be spending more time at the vets than ever.

With Allianz UK Mid Cap up 61.5% over the last three years, some might be surprised to see it on the list. However, it invests in medium-sized companies and they have led the market in recent years – they are more domestically focused than large caps so have benefited more from the UK’s economic recovery. The FTSE 250 index of mid-caps is up 72.9% over three years, so despite the fund’s strong absolute returns, it has been a runt in an otherwise vibrant litter.


The value of investments can go down as well as up and you can get back less than you originally invested. Past performance should not be considered a reliable indicator of future returns. Funds may carry different levels of risk depending on the industry sector(s) in which they invest. You should ensure that you understand the nature of any fund before you invest in it. This guide does not constitute personal advice.


on £100

Relative 3 year

return %

1st year return

2nd year return

3rd year return

4th year return

5th year return

Scottish Widows UK Select Growth 108 -21 89.47 111.98 107.81 91.52 111.94

Aberdeen UK Opportunities Equity 110 -20 90.65 112.50 107.60 90.60 109.89

M&G Recovery 112 -18 90.41 114.13 108.71 93.72 116.47

F&C UK Alpha 116 -16 95.05 113.92 107.04 88.47 125.22

Halifax Special Situations 115 -16 91.55 115.66 108.75 89.95 112.79

Santander N&P UK Growth 122 -11 95.91 118.22 107.75 96.74 113.50

Allianz UK Mid Cap* 162 -10 100.81 132.72 120.70 90.64 129.13

Santander UK Growth 124 -10 95.81 119.02 108.26 95.98 113.86

BENCHMARK: *FTSE 250 Mid (ex Investment Trust)


on £100

Relative 3 year

return %

1st year return

2nd year return

3rd year return

4th year return

5th year return

JO Hambro CM UK Dynamic 171 24 102.67 130.85 126.94 91.39 116.13

Old Mutual UK Alpha 163 19 101.24 131.13 122.78 91.26 120.58

Majedie UK Equity 153 11 101.81 128.37 116.71 99.90 112.34

Invesco Perpetual High Income 148 8 109.65 125.53 107.67 108.99 110.94

Liontrust Special Situations 148 8 100.86 119.97 122.36 107.54 136.14


FTSE All-Share 137.27 151.76


Number of Funds 176 8 5%

Value of Funds (£mn) £95,649.27 £6,578.38 7%

200

250

0

50

100

150

FTSE All-Share

Source: Lipper for Investment Management

JUN14 DEC14JUN10DEC09 DEC10 DEC11 DEC12 DEC13JUN11 JUN12 JUN13

Tota

l Ret

urns

(%)

JO Hambro CM UK Dynamic

Scottish Widows UK Select Growth

IN THE DOGHOUSE VS PEDIGREE PICKS




UK Smaller Companies dogsOne of the biggest shocks in our last report was the appearance of the popular Standard Life UK Smaller Companies fund run by respected manager Harry Nimmo. We said at the time “we would be surprised if the fund were to make a regular appearance”. Although the fund has undershot the benchmark by 11% over three years and has had a poor 12-months, it no longer meets the criteria of having underperformed in each one of the last three 12-month periods and therefore has shaken off its dog tag – for now.

The ranks of smaller company underachievers have however swelled to six funds from four in the last edition, with just one repeat offender – the abysmally performing SF Webb Capital Smaller Companies fund. New entrants include funds from Artemis and Jupiter. The Aberdeen UK Smaller Companies fund is a former SWIP fund, brought under Aberdeen’s range as a result of an acquisition last year.

It’s worth noting that this has been a difficult period for UK smaller companies funds generally, with all but one of the pedigree picks underperforming over the last three years.


on £100

Relative 3 year

return %

1st year return

2nd year return

3rd year return

4th year return

5th year return

SF Webb Capital Smaller Companies Growth 58 -67 83.19 108.61 64.27 63.60 131.08

CFIC Octopus UK Micro Cap Growth* 143 -25 95.14 131.59 113.98 103.56 107.18

Majedie UK Smaller Companies 136 -22 94.19 126.81 113.82 86.96 138.94

Jupiter UK Smaller Companies* 156 -18 96.78 131.82 122.46 89.82 129.35

Aberdeen UK Smaller Companies Equity* 161 -16 92.74 136.00 127.41 88.98 133.17

Artemis UK Smaller Companies 151 -14 95.14 130.21 121.63 100.91 124.26

BENCHMARK: *FTSE Small Cap (ex Investment Trust)


on £100

Relative 3 year

return %

1st year return

2nd year return

3rd year return

4th year return

5th year return

Liontrust UK Smaller Companies 181 4 104.11 130.17 133.88 101.49 127.61

Old Mutual UK Smaller Companies 174 -1 98.78 138.17 127.12 91.14 134.06

Marlborough Special Situations 171 -2 105.00 134.72 121.10 97.84 142.35

Franklin UK Smaller Companies 162 -7 98.92 150.68 108.49 79.49 135.15

Marlborough UK Micro Cap Growth* 175 -8 102.69 138.45 123.24 102.17 140.24

BENCHMARK: *FTSE Small Cap (ex Investment Trust)


The value of investments can go down as well as up and you can get back less than you originally invested. Past performance should not be considered a reliable indicator of future returns. Smaller companies shares can be more volatile and less liquid than larger company shares, so smaller companies funds can carry more risk. This guide does not constitute personal advice.


Numis Smaller Companies (ex Investment Trust) 174.63 203.90



Value of Funds (£mn) £10,512.39 £1,056.17 10%

350

300

0

250

200

150

100

50

Numis Smaller Companies (ex Investment Trust)



Tota

l Ret

urns

(%)

Liontrust UK Smaller Companies

SF Webb Capital Smaller Companies Growth





Missing from our previous edition, a European pack of four is now in the doghouse, two being Neptune-bred. In the past two years Neptune European Income saw manager change twice: James Hackman, replacing Rob Burnett in February 2013, and then Burnett taking back the fund in January 2014.

Neptune European Opportunities, featuring in our second 2013 edition, was downgraded to a sell rating in May 2013. It has now returned again, carrying its tail between its legs. Run by Rob Burnett since December 2005, it was a reasonably high-profile fund in the past, but more recently the manager has struggled to adapt his process to the challenging macroeconomic environment in the region. Aberdeen European Equity is a new breed among the European dogs, but we already saw HSBC European Growth in our first edition of 2014. A once-popular fund, it has seen a number of manager changes over the years and has struggled to perform.


The value of investments can go down as well as up and you can get back less than you originally invested. Past performance should not be considered a reliable indicator of future returns. Funds may carry different levels of risk depending on the industry sector(s) in which they invest. You should ensure that you understand the nature of any fund before you invest in it. This guide does not constitute personal advice.


on £100

Relative 3 year

return %

1st year return

2nd year return

3rd year return

4th year return

5th year return

Neptune European Opportunities 123 -17 90.77 122.22 111.10 88.41 107.76

Aberdeen European Equity 129 -13 98.19 114.33 114.96 89.13 107.60

Neptune European Income 131 -11 96.96 120.58 111.95 92.88 99.04

HSBC European Growth 133 -10 98.11 120.87 112.14 81.12 114.93


on £100

Relative 3 year

return %

1st year return

2nd year return

3rd year return

4th year return

5th year return

JPM Europe Dynamic (ex-UK) GBP Hedged 184 24 108.33 136.39 124.30 84.39 N/A

Artemis European Opportunities Hedged 171 16 107.38 125.53 126.66 N/A N/A

Henderson European Focus 162 10 104.08 127.57 121.98 90.74 112.78

Jupiter European 162 9 105.14 124.71 123.16 87.08 126.31

Threadneedle European Select 153 4 103.62 122.15 121.13 94.59 120.46


FTSE World Europe ex UK 147.73 133.24



Value of Funds (£mn) £36,235.59 £939.49 3%

200

180

0

160

140

120

100

80

60

40

20


Tota

l Ret

urns

(%)

FTSE World Europe ex UK

Source: Lipper for Investment Management Henderson European Focus


Neptune European Opportunities

European dogs




The number of dogs in the Global Emerging Markets sector has increased from the three seen in our previous publication to five this time. FP HEXAM Global Emerging Markets has been underperforming its own and our benchmarks for a number of consecutive years after it launched in 2008, meaning it’s no alpha male.

In spite of overweighting India (a stellar-performing market last year), Neptune Emerging Markets is a firm resident in the doghouse, while Baring Emerging Markets has managed to escape it. Three new entrants include Lazard Developing Markets – a fund that has only a limited overlap with the pedigree pick Lazard Emerging Markets; Templeton Global Emerging Markets, which we downgraded to a sell rating in 2008; and Marlborough Emerging Markets, which has a small and mid-size bias that is not helped by the current generally risk-averse environment.

Global Emerging Markets dogs


The value of investments can go down as well as up and you can get back less than you originally invested. Past performance should not be considered a reliable indicator of future returns. Underlying investments in emerging markets are generally less well regulated than the UK. There is an increased chance of political and economic instability with less reliable custody, dealing and settlement arrangements. The market(s) can be less liquid. If a fund investing in markets is affected by currency exchange rates, the investment could both increase or decrease. These investments therefore carry more risk. This guide does not constitute personal advice.

180

0

20

40

60

80

100

120

140

160

MSCI Emerging Markets



Tota

l Ret

urns

(%)

Lazard Emerging Markets

FP HEXAM Global Emerging Markets



on £100

Relative 3 year

return %

1st year return

2nd year return

3rd year return

4th year return

5th year return

FP HEXAM Global Emerging Markets 71 -37 81.81 87.12 99.52 68.79 116.38

Templeton Global Emerging Markets 88 -23 94.86 85.03 108.50 71.47 116.21

Neptune Emerging Markets 98 -14 99.26 94.08 104.89 76.07 122.70

Lazard Developing Markets 99 -13 95.20 93.97 110.13 73.86 N/A

Marlborough Emerging Markets 100 -12 99.47 91.28 110.29 81.43 123.22


on £100

Relative 3 year

return %

1st year return

2nd year return

3rd year return

4th year return

5th year return

Lazard Emerging Markets 113 0 100.76 97.27 115.63 82.03 126.94

JPM Emerging Markets 110 -4 104.31 93.49 112.27 82.22 122.97


MSCI Emerging Markets 113.46 114.98



Value of Funds (£mn) £12,791.49 £39.34 0%




With the number of Asia Pacific dogs going up one notch to four from our last edition, only Marlborough Far East Growth has remained on our list, having been resident in the doghouse for some time. It’s pleasing to note that former offenders Martin Currie China and F&C Pacific Growth have been rehomed after improving performance.

At the same time, three new mutts have emerged, including HSBC Asian Growth and Newton Oriental. The former is a relatively small Chihuahua at a £40 million fund size and the latter a fair Foxhound at nearly £400 million. UBS Asian Consumption has not only underperformed its dual-sectors’ MSCI AC Asia ex Japan Consumer and Health Care Sectors benchmark but also the broader MSCI Asia Pacific ex Japan benchmark.

Asia Pacific dogs


The value of investments can go down as well as up and you can get back less than you originally invested. Past performance should not be considered a reliable indicator of future returns. Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing. This guide does not constitute personal advice.

200

180

0

160

140

120

100

80

60

40

20



Tota

l Ret

urns

(%)


Newton Oriental

Newton Asian Income

MSCI AC Pacific ex Japan


on £100

Relative 3 year

return %

1st year return

2nd year return

3rd year return

4th year return

5th year return

Newton Oriental* 109 -15 103.33 96.19 110.06 81.66 130.93

HSBC Asian Growth** 114 -14 106.75 98.35 108.95 79.38 125.64

Marlborough Far East Growth** 114 -14 107.78 91.09 116.47 79.86 108.52

UBS Asian Consumption 115 -12 101.25 99.65 114.20 91.02 N/A

BENCHMARK: *MSCI AC Pacific ex Japan, **MSCI AC Asia ex Japan


on £100

Relative 3 year

return %

1st year return

2nd year return

3rd year return

4th year return

5th year return

First State Asia Pacific Leaders 142 8 119.07 100.38 118.45 92.02 126.67

Henderson Asian Dividend Income 135 3 108.18 102.80 121.17 87.02 118.96

Invesco Perpetual Asian 134 3 110.47 104.74 116.08 84.18 125.63

Newton Asian Income* 132 2 110.35 98.73 121.46 98.55 131.98

Schroder Asian Alpha Plus** 133 1 110.81 97.87 122.41 89.22 132.81

BENCHMARK: *MSCI AC Pacific ex Japan, **MSCI AC Far East ex Japan


MSCI AC Asia Pacific ex Japan 130.60 135.98



Value of Funds (£mn) £25,892.00 £450.81 2%




North American dogs

IMPORTANT INFORMATIONThe value of investments can go down as well as up and you can get back less than you originally invested. Past performance should not be considered a reliable indicator of future returns. Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing. This guide does not constitute personal advice.

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S&P 500



Tota

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HSBC American Index

Cavendish North American



on £100

Relative 3 year

return %

1st year return

2nd year return

3rd year return

4th year return

5th year return

IFSL Harewood US Enhanced Income 143 -18 113.84 118.38 106.36 N/A N/A

Legg Mason US Smaller Companies* 139 -18 105.79 125.35 104.53 93.27 128.47

Cavendish North American 149 -15 116.97 122.77 103.45 87.89 120.34

Investec American 148 -15 118.38 125.91 99.24 86.06 113.91

Allianz US Equity 149 -14 119.36 123.24 101.43 98.51 115.04

Miton American 150 -14 116.69 121.99 105.66 96.72 119.54

Neptune US Income** 151 -14 117.18 124.36 103.35 105.43 N/A

Aberdeen North American Equity 153 -12 114.02 125.03 107.24 96.99 115.28

Baillie Gifford American 152 -12 116.57 125.19 104.44 101.18 123.94

Legg Mason US Equity Income** 154 -12 118.75 123.12 105.63 N/A N/A

Smith & Williamson North American 152 -12 114.37 128.92 103.38 100.00 118.72

Fidelity American 154 -11 115.86 128.69 103.34 95.51 119.32

BENCHMARK: *Russell 2000, **Russell 1000 value


on £100

Relative 3 year

return %

1st year return

2nd year return

3rd year return

4th year return

5th year return

Dodge & Cox Worldwide US Stock 185 6 118.08 137.09 114.48 95.91 N/A

HSBC American Index 171 -2 121.43 130.34 107.98 102.50 118.06


S&P 500 174.02 212.45



Value of Funds (£mn) £24,354.31 £2,362.03 10%



The US equity index has in recent years left other equity markets languishing. Some managers were caught on the hop by its rise and had been expecting corrections which never happened. We have sympathy for their predicament but it is easy to see why many investors switched to index- tracking funds for their US exposure. Even legendary investor Warren Buffett now advocates such an approach.

Some funds stand out as perennial pups. This time there are a dozen at the back of the pack, many of them serial offenders, leading to some managers being let off the leash. Two US income funds (Legg Mason US Equity Income and Neptune US Income) really should have done better, since much of the US rally was mirrored in easy-to-spot consistent dividend payers.

The good news? Though they are underperforming, all of these funds have actually made money for investors. It is just that they have made less than the meteoric rise in the US index.


Although the Japanese equity market experienced a cooling-off period during 2014, this has not had a major impact on the number of residents in the Japanese doghouse. There are two members this time, including one repeat offender – AXA Rosenberg Japan. The fund seems to have established a solid presence in the doghouse, featuring twice previously. It follows a computer-driven quantitative approach to investment and has underperformed the Topix index across the board. The brief recovery of large-cap value stocks during 2012 has not helped this dog escape. However, the fund’s outperformance of its Investment Association group over the last year provides hope that this hound can break out of the dog pound.

Schroder Japan Alpha Plus is a new joiner. The fund focuses on undervalued larger companies, a style that has been largely out of favour since 2009.

Japanese dogs

IMPORTANT INFORMATIONThe value of investments can go down as well as up and you can get back less than you originally invested. Past performance should not be considered a reliable indicator of future returns. Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing. This guide does not constitute personal advice.

Topix


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JO Hambro CM Japan

Schroder Japan Alpha Plus



on £100

Relative 3 year

return %

1st year return

2nd year return

3rd year return

4th year return

5th year return

Schroder Japan Alpha Plus 107 -19 97.23 115.26 95.21 90.31 126.45

AXA Rosenberg Japan 118 -11 100.90 117.26 99.44 85.22 118.66


on £100

Relative 3 year

return %

1st year return

2nd year return

3rd year return

4th year return

5th year return

JO Hambro CM Japan 138 5 99.19 124.76 111.87 85.69 121.32

GLG Japan Core Alpha 133 1 100.40 131.54 100.37 83.31 124.20

CF Morant Wright Nippon Yield 133 1 105.80 118.51 105.64 100.99 126.92

Schroder Tokyo 132 0 103.25 123.35 103.50 92.64 121.17

CF Morant Wright Japan 127 -4 102.01 124.75 99.46 91.24 117.14


Topix 131.62 138.67



Value of Funds (£mn) £8,777.63 £91.62 1%




The global benchmark indices are dominated by the US, which accounts for approximately 58% of the MSCI World and 52% of the MSCI AC World indices. Japan and Emerging Markets each account for around 8% and 7% respectively. The strong performance of both US and Japanese equities over the last three years meant that funds were more likely to outperform if they had an overweight to either the US or Japan, or both. Few did.

On the flipside, those overweight emerging markets – Latin America in particular – suffered setbacks, as the region has been volatile and performed relatively poorly over the last few years.

A fifth of the funds in the global equities sector by value have been dog tagged, with a number of funds being on the repeat offender’s register. These include River & Mercantile Global Opportunities, CF Purisima Global Total Return, PFS Taube Global, St James’s Place High Octane, Aberdeen Ethical World Equity, M&G Global Basics, CF JM Finn Global Opportunities and Neptune Global Special Situations. On the positive side, the global dog universe has shrunk since the last publication, giving hope that the vet’s treatment is working.

A number of global income funds have appeared this time around, with funds from Old Mutual, BlackRock, Newton, Baillie Gifford and Aberdeen featuring on our list. Higher yielding stocks are increasingly difficult to find in the US as share prices have rocketed, forcing income managers to hunt elsewhere.

Global dogs

PFS Taube Global

MSCI World

CF Odey Opus Source: Lipper for Investment Management

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MSCI World 156.08 173.05



Value of Funds (£mn) £59,525.05 £11,480.69 19%


Global dogs continued


The value of investments can go down as well as up and you can get back less than you originally invested. Past performance should not be considered a reliable indicator of future returns. Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing. This guide does not constitute personal advice.


on £100

Relative 3 year

return %

1st year return

2nd year return

3rd year return

4th year return

5th year return

PFS Taube Global 104 -34 97.33 112.79 94.35 96.88 102.92

M&G Global Basics* 104 -31 99.87 103.12 100.99 87.67 127.69

Aberdeen World Equity Income* 112 -25 101.02 104.27 106.56 100.53 115.30

Old Mutual Global Equity Income* 115 -23 97.47 111.45 106.12 N/A N/A

Neptune Global Special Situations* 117 -22 103.12 114.45 99.37 83.00 120.07

St. James’s Place High Octane 124 -21 99.91 121.02 102.10 93.56 124.32

Aberdeen Ethical World Equity 125 -20 105.68 108.68 108.49 90.69 114.55

Aberdeen World Equity 127 -18 105.51 110.35 109.40 97.67 114.94

Martin Currie Global Equity Income 131 -16 102.64 116.99 108.94 100.73 N/A

Baillie Gifford Global Income Growth 133 -15 106.00 114.95 109.32 96.17 N/A

CF JM Finn Global Opportunities* 128 -15 103.35 112.65 109.84 83.27 133.05

River and Mercantile Global Opportunities* 129 -14 100.88 116.66 109.74 83.85 120.28

CF Purisima Global Total Return 135 -13 111.25 121.17 100.27 92.65 117.61

First State Worldwide Equity* 131 -13 103.73 115.77 108.63 N/A N/A

BlackRock Global Income* 133 -12 108.69 117.18 104.28 N/A N/A

St. James's Place Global Equity 139 -11 108.39 116.44 110.41 N/A N/A

Wesleyan International 139 -11 106.00 120.06 109.25 90.59 112.49

Morgan Stanley Global Brands 141 -10 111.09 116.78 108.59 108.57 117.21

Newton Global Higher Income* 136 -10 108.22 114.19 110.19 102.54 113.31

BENCHMARK: *MSCI AC World


on £100

Relative 3 year

return %

1st year return

2nd year return

3rd year return

4th year return

5th year return

CF Odey Opus 165 6 106.64 128.34 120.72 85.84 111.36

THS International Growth & Value 144 -8 98.97 126.35 115.21 88.68 110.18




Is it time to take a hard look at all of your investments?Sadly, the funds listed in Spot the Dog represent the tip of the iceberg for underachieving investments – the very ‘worst of the worst’. The industry is littered with also-rans that have escaped inclusion, so don’t assume that all is well if the funds you own aren’t in these tables. It is important to periodically review all of your investments and check whether they remain right for you. Strong rises in stock markets in recent years may mean you think your investments are faring well, when in fact they could be seriously lagging.

More and more people are choosing to manage their own investments. And while many enjoy taking control and monitoring their progress, others find that their early enthusiasm gradually wanes or they simply don’t have the time to devote to investing given the busy lives they lead.

One of the biggest pitfalls with self-investing can be the failure to review your investments periodically. Taking your eye off the ball can not only mean quietly enduring disappointing returns from individual funds, but also having a mix of investments that may not be appropriate for your goals, or appetite for risk.

It therefore makes sense to step back every now and then, weed out any investments that no longer deserve a place in your portfolio and also consider whether you should rebalance your exposure to different asset classes, such as equities and bonds, markets and geographies. As various investments will perform differently over time, this inevitably means that your exposure to different markets will drift – potentially turning an initially low-risk portfolio into a much higher-risk one.

In our view, the key building blocks of a successful portfolio are:

1. Being clear about your overall goals Are you primarily looking for capital growth, an income or a combination of both?

2. Considering how much risk you can tolerate When investing, there is a relationship between risk and potential reward, but also a high degree of uncertainty. It is important to consider the level of risk you are willing to take, and this will in part depend on how long you expect to remain invested.

3. Choosing the right asset allocation Asset allocation is how you divide your investments between different asset classes (types of investments) such as shares, bonds and property and it plays a key role in how much risk you are exposed to.

4. Selecting high-quality investments Once you have chosen an appropriate asset allocation strategy, it is important to populate it with high- quality investments that have the potential to deliver returns that more than justify the costs involved.

5. Monitoring your investments regularly If it has been some time since you last gave your investments a thorough health check and you want to get the most out of your investments in 2015, now might be the time to review them. Whether you wish to manage your own investments, get the help of a qualified adviser, or would like your investments managed, we can help.

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The value of your investment and the income derived from it can go down as well as up and you can get back less than you originally invested. Past performance is not a guide to future performance. Prevailing tax rates and relief are dependent on your individual circumstances and are subject to change. Funds which invest in specific sectors may carry more risk than those spread across a number of different sectors. They may assume higher risk, as markets/sectors can be more volatile. In particular, gold, technology funds and other focused funds can suffer as the underlying stocks can be more volatile and less liquid. This document does not constitute personal advice. If you are in any doubt as to the suitability of an investment, please contact one of our advisers.

The Tilney Bestinvest Group of Companies comprises the firms Bestinvest (Brokers) Ltd (Reg. No. 2830297), Tilney Investment Management (Reg. No. 02010520), Bestinvest (Consultants) Ltd (Reg. No. 1550116) and HW Financial Services Ltd (Reg. No. 02030706) all of which are authorised and regulated by the Financial Conduct Authority. Registered office: 6 Chesterfield Gardens, Mayfair, W1J 5BQ. 120115-1007

If you are in doubt about the suitability of this investment, you should consult your Financial Adviser

Spot The Dog - Spring 2015

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Transcript of Spot The Dog - Spring 2015