It has been a difficult period for equity income funds - with many companies suspending dividends during the Covid-19 pandemic.
Despite a recovery in dividends, this explains why a number of 'dog' funds were in the Global Equity Income sector.
Overall, the number of ‘dog’ funds rose to 86 between July and December 2021, up from 77 in the previous six-month period. Based on their current size and ongoing fees, these funds would generate annual fees for £463mn in a flat market.
Assets in these funds also jumped by 54 per cent, from £25.6bn in the first half of last year to £45.4bn in the second half.
Invesco had four ‘dog’ funds on the list, totalling £4.97bn. At the start of 2021, it had 11 funds worth £9.2bn on the list.
The report said the internal shake-up of its investment team “appears to be paying dividends”.
Though Invesco's UK Equity High Income and UK Equity Income funds have still struggled.
The funds, managed by Neil Woodford until 2013 and then by Mark Barnett until 2019, are now under new management.
“The environment in 2021 should have been better for the funds’ style and the management has had plenty of time to effect a change in fortunes,” Bestinvest's report said. “Investors continue to drift away, but there’s still £4.34bn in these poorly trained pooches.”
A spokesperson for Invesco said over the past two years, it has made a number of positive changes to portfolios, teams and processes across some of its UK range.
“As a result performance has substantially improved,” they said. “However, we must emphasise that this is a long-term and iterative process, and it will take some time for the impact of these changes to be reflected in the longer term figures. Our fund managers remain focused on delivering the best possible outcome for our clients.”
Jason Hollands, managing director of Bestinvest, said in recent years it has been tougher for investors to identify weak funds, due to low interest rates and central bank money-printing programmes pushing share prices higher.
“Most funds investing in equities have generated gains irrespective of the skill of their managers,” he explained. “This rising tide has helped to disguise some bad decisions from fund managers who have earned handsome fees in the process.”
Hollands reckons with inflation pushing up borrowing costs and interest rates, growth sectors such as technology may begin to suffer this year whilst the shares in banks claw their way back.
ruby.hinchliffe@ft.com
