Beware of the dog – the importance of monitoring funds regularly

Posted on March 26, 2012 No Comments

If you watch the money programmes on TV or read the financial pages of the

newspapers, you might have come across the term ‘dog fund.’ What does the term mean? And why is it so important to the ordinary investor?

Put simply, a ‘dog’ is a poorly performing investment fund. Let me explain in more detail.

All investment funds are divided into ‘sectors’ – for example, UK Growth Funds, which will invest in the shares of UK companies with the aim of producing long term growth. Classifying funds in this way allows meaningful comparisons to be made. Funds can be compared both against each other, and against the average performance of all the funds in the relevant sector. Fund X isn’t necessarily a good fund to invest in simply because it has done better than Fund Y – they might both have performed well below the average. However, if Fund X has turned in a performance which has been consistently above average, then it could well be a fund that you’d want to consider.

The trouble is there are funds which have performed well below the average for their sector – and if a fund is consistently 10% below the sector average then it earns the dreaded ‘dog’ tag. Worryingly, a recent report in the Daily Telegraph – based on an industry survey – highlighted the fact that investors had over £9bn languishing in these ‘dog funds.’ Included in the list were some well-known names, among them funds managed by Scottish Widows, Standard Life, Schroder and M&G – so if you’re invested in a broad spread of funds, it could well be

the case that one of more of your funds is on the list. With fund managers continuing to levy their full charges, irrespective of the performance of the fund, there’s a real danger that investors are exposing their capital to unnecessary risks by continuing to be invested in these poorly performing funds.

This is one of the reasons why regular meetings with an independent financial adviser are such a good idea. Keeping a close eye on the performance of all your funds will mean that under-performing funds can quickly be identified and, if necessary, changes made to your portfolio.

Poor performance also highlights a key reason why independent advice is so important. It’s very easy for an adviser to make any fund look good by presenting you with a glossy sales aid showing its performance against other, well known funds. The trouble is, they could all be poor performers. If you’re thinking of investing in a fund, you need to see how it compares against all the funds in its sector – not just a handpicked few. As an IFA is able to advise you on (and recommend) any investment fund, he’ll have no qualms about pointing out poor performance and recommending possible changes.

Whilst changing funds may have some immediate cost implications, remaining in a poorly performing fund can ultimately do far more damage to the value of your investment.

If you are worried about the performance of any of the funds in which you are invested – or you would simply like to review your overall investments – then please don’t hesitate to contact us.

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