Jason Hollands

The report uses statistical fund performance data to identify funds that have consistently performed badly compared to their benchmark.

The online investment service identified 77 ‘dog funds’ in its latest report, which have underperformed in the market. However, this is a drastic drop from the 150 funds it highlighted as lacklustre six months ago.

Lloyds Banking Group-owned HBOS topped the listing, replacing Invesco, which had held the top spot for six of the biannual reports.

According to Bestinvest, HBOS had some £6.85 billion of its investors’ cash in five of these underperforming funds, while Invesco had £5bn in three. St James’s Place had £3.92bn across four funds and Scottish Widows had £2.73bn in four funds.

There are seven funds with more than £1bn in the latest list, managed by HBOS, Scottish Widows, St James’s Place, Fidelity and Abrdn, formerly Standard Life Aberdeen.

The Spot the Dog report has been exposing badly performing funds since it launched in 1994. Investment experts at Bestinvest scrutinise funds from all sectors, identifying constant poor performers and highlighting “best-of-breed” alternatives in the report.

To be featured in the list, funds must have given their investors worse returns than the markets they invest in for each of the last three years. The funds must also have underperformed their markets by at least 5% across the three-year period.

Bestinvest noted that two of the funds it examined had underperformed by 49%.

Jason Hollands, managing director, said: “In most cases soaring markets have masked the fact that the decisions made by the managers of dog funds have actually detracted from the returns their investors might have received. Such funds represent poor value for money given the fees investors have paid.”

He added however that the report does show a “sharp fall” in the number of dog funds since our last edition.

He said this was largely down to a much better period for managers who target cheap, undervalued shares rather than high growth companies.

He concluded: “The key message of this edition of Spot the Dog is not to take it for granted that your investments are doing OK, just because they may have risen in value over the last year.”