Worst SIPP Funds Revealed By Provider Bestinvest’s Spot the Dog

Bestinvest has published its Spot the Dog report and it makes for uncomfortable reading for SIPP investors and fund managers alike.

The latest Bestinvest Spot the Dog report reveals a rather worrying surge in the amount of assets “locked up” in underperforming investment funds, despite the total number of struggling funds holding steady rather than rising.

While 137 funds remain in the doghouse since the last Bestinvest report, the value of poorly performing investments is up by +26.0% to £67.44 billion.

Sustainable investing faces particular challenges, with a quarter of the underperforming funds being ESG-affiliated.

The struggle to perform in part reflects broader market dynamics, under which traditional energy stocks have soared by as much as +71.30% in three years when measured by the MSCI World Energy Index.

Whilst renewable energy investments have plummeted, falling by almost -49.0% over three years, as tracked by the MSCI Global Alternative Energy Index.

Global equity funds continue to dominate the list of laggards, though worryingly UK Smaller Companies emerged as the sector with the highest proportion of struggling funds.

London Stock Exchange Group, the FCA and the Treasury should take note of the above.

Jason Hollands, Managing Director at Bestinvest by Evelyn Partners, points to several factors behind these trends.

“The tearaway performance of the ‘Magnificent Seven’ tech stocks created a challenging environment for funds not heavily weighted toward these market leaders,” 

He added

“The dramatic surge in energy prices following Russia’s invasion of Ukraine also created headwinds for ESG-focused managers”

Of particular concern is the concentration of assets held in large funds that are struggling.

The report identified Fifteen funds with over £1.0 billion in assets, which account for £40.14 billion, or more than half of the total of underperforming investments.

That number is up sharply from the previous report’s £26.81 billion spread across ten funds.

The report’s findings come at a key time for investors and savers, who are considering what to do with their ISA allocations, as the new tax year approaches.

Hollands advises reviewing your existing holdings before making new investments, noting that underperformance can stem from various factors that range from temporary market conditions to deeper management issues.

Large funds with large losses

The two biggest underperformers by AUM (assets under management) are both funds run by St James’s Place, suggesting that issues at the wealth manager run deeper than just its contentious fee structure and sales force.

The St. James’s Place Global Quality Fund tops the list of large underperformers, with £9.43 billion in assets, the fund is trailing its benchmark by -26.0% over three years.
The fund aims to produce growth by investing in a wide range of countries, with at least 70.0% of its assets held in equities.

Surprisingly, given its performance, the fund’s biggest weighting by region is to North American stocks, and its biggest individual holdings are Visa, Microsoft and Philip Morris.

The fund’s underperformance is even harder to understand when you consider that “Quality” stocks in the US, as tracked by iShares MSCI US Quality Factor ETF, have risen by +43.70% over three years outperforming even the S&P 500 index in that period.

Among sustainable investments, the SJP Sustainable & Responsible Equity fund manages £5.27 billion and has lagged its benchmark by -24.0%.
The fund’s mandate is to achieve capital appreciation over five years by investing at least 75.0% of its assets in companies, worldwide, which demonstrate strong environmental, social and governance (ESG) credentials.

Once again the fund is weighted towards North American equities, with just over 52.0% invested here.

Microsoft, Boston Scientific, and Mastercard are the fund’s top holdings, in the US and overall.

Indeed the fund also has exposure to the theme of the moment “AI” through holdings in Nvidia, Oracle and Schneider Electric.

Of course, a combination of the right stocks and the wrong timing can be a recipe for poor performance but I am at a loss to fully explain what’s happened here.

What are the worst performers?

Not that these two funds are anywhere near being the worst performers.

That dubious accolade belongs to the Artemis Positive Future Fund, a rather ironic name given that it’s underperformed its benchmark by a frankly staggering –63.0%.

Baillie Gifford Global Discovery Fund, which is designed to outperform the S&P Global Small Cap index, was the second worst performer, missing its benchmark by –56.0%.

Stablemate the Baillie Gifford Japanese Smaller Companies fund undershot by -49.0% as did the Aegon Sustainable Equity fund.

What should I do?

Firstly don’t panic. The findings of this report shouldn’t trigger automatic selling by retail investors.

However, they do highlight the importance of conducting regular portfolio reviews, in a marketplace where active management fees increasingly need to be justified by superior returns.

The growing pool of so-called “trapped assets” suggests many investors would benefit from reassessing their fund selection, asset allocation choices and processes.

Poor performance like this, among actively managed funds, is only likely to drive investors into the arms of ETFs. Many of these are passive products that aim to achieve a market return, often with charges below those of actively managed funds.