Here, Which? takes a look at the disappointing funds and what went wrong, and offers advice for picking investments and knowing when to call it quits.
Which funds are the worst performing?
Funds are included in the report if they produce worse returns than the ‘benchmark’ in their sector over three consecutive 12-month periods, and underperform by 5% over the full three years.
The benchmark is generally an index that invests in everything in the sector – for example, UK equity funds are compared to the MSCI United Kingdom All Cap Index.
This means a fund can be included in the list and still produce positive returns – as many do. But the very worst in the list left investors worse off after three years than when they first invested.
10 biggest under-performers
The Baillie Gifford Global Discovery Fund is no longer the worst-performing fund, with Artemis Positive Future Fund taking the dreaded top spot.
Though the Baillie Gifford Global Discovery Fund would have still left you the most out of pocket, it was compared to a benchmark of small companies in the global sector that delivered lower returns than the benchmark the Artemis Positive Future Fund was held to, which did well over three years – making the fund's underperformance more pronounced.
The Artemis Positive Future Fund is a high-risk global fund that selects 35-45 companies believed to 'disrupt established industries' and offer positive environmental or social impact. The fund appointed a new manager in March 2024, and is transitioning to a new approach.
Find out more:What are the biggest underperforming funds?
The 10 largest funds in the list account for nearly half of the money held across all 137 funds in the list. While these funds aren't the worst performers, they have more people invested who are losing out compared to the benchmark.
10 biggest underperformers by size of fund
Though St James's Place has halved the number of its funds in the overall list of 137 funds from six to three, their huge SJP Global Quality fund is the biggest, with more than £10bn invested. In addition to its disappointing returns, the fund has a huge 1.83% ongoing charge, compared to an average of 0.8% for an actively managed fund or 0.08% in the passively managed global sector.
Why are some funds doing badly?
Certain active funds that have specific stocks picked by a manager have also struggled against their benchmarks because they don’t include the ‘magnificent seven’ US tech stocks, which have driven strong returns. Nearly a third of the funds on the list (43) are in the global sector that has been impacted.
But, just because that’s holding them back now, doesn’t mean it won’t be a point in their favour if tech stocks start to lose their shine. Recently, share prices have taken substantial hits as investors become wary of overemphasising the impact of AI.
How do you know when it's time to sell a fund?
A fund not performing against the benchmark isn’t always a reason to sell your stake in it straight away. There’s a balance to be found between cutting your losses and keeping a level head during ups and downs in the market.
Some funds that appeared on the last version of the list, published in February 2024, are no longer underperforming. So, reacting too quickly could see you sell when the fund is performing badly, only for things to pick up again when you can no longer benefit.
Jason Hollands, Managing Director of Bestinvest by Evelyn Partners, says: 'For investors choosing to invest in actively managed funds, finding managers with the right skills to deliver superior long-term returns is vital to justify paying the fees to be invested in those funds. With many fund managers failing to achieve this over the long run, the report acts as a guide to encourage investors to keep a closer watch on how their investments are performing to assess what action, if any, is required and when.
'Funds can stumble for a myriad of different reasons – from poor decision making or a run of bad luck to instability in the team or because the fund has a style or process no longer favoured by recent market trends. 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.'
Here are some things to consider before you sell your stake in a fund:
Take a look at the longer-term performanceConsider external pressuresAre the fees unreasonable? –How do you pick the right funds?
Unfortunately, there’s no straightforward answer to picking the funds that will get you the best returns because you can’t see into the future. To future-proof your investments to the best of your ability, you can diversify what you invest in, so it doesn’t matter as much if one of the funds you invest in hits a rough patch.
Find out more:source https://www.which.co.uk/news/article/the-worst-performing-investment-funds-revealed-adHQ80I0Vb8C