The total value of investors’ wealth in poorly performing equity funds has increased by 26 per cent over the past six months, despite the number of funds remaining the same, according to a report from Bestinvest.

Its study found that while the number of underperforming equity funds remained at 137, the value of assets in these funds has grown from £53.4bn in August 2024 to £67.4bn.

Bestinvest’s biannual Spot the Dog report highlights the funds that have consistently underperformed their relevant market index over three consecutive 12-month periods and by 5 per cent or more over the entire three years analysed.

It found that around a third (44) of the poorly performing equity funds were global equity funds, holding £35.2bn of wealth, while approximately a quarter were sustainable, responsible, ethical, or impact funds.

The report noted that the high proportion of sustainable funds on the list reflected ESG investments falling foul of the surge in oil and gas stocks, and the “dismal return” on renewables in recent years.

UK Smaller Companies was the sector with the highest proportion of underperforming funds as a percentage of its overall size, with 11 funds making the list accounting for 28 per cent of the sector.

Bestinvest highlighted that the size and number of large funds on the list was an area of concern, with 15 funds over £1bn in size accounting for £40.1bn of the wealth total.

This was a “big step up” from the 10 large funds accounting for £26.8bn in the previous report in August.

“Our Spot the Dog analysis is designed to remind investors to monitor their portfolio at regular intervals to assess how well their assets are performing,” commented Bestinvest managing director, Jason Hollands.

“While the report should never be treated as a ‘sell’ list, it highlights the importance of keeping a close watch on your investments and assessing what action, if any, is required and when.

“Actively managed funds can underperform for a variety of reasons – from a run of bad luck to instability in the team or simply bad decision making. So, investors should endeavour to find managers with the right skills to deliver superior long-term returns. This is imperative to justify paying the fees to be invested in those funds.

“A fund with a style or process out of kilter with recent market trends may also be adversely impacted. This is why identifying whether a fund is struggling with short-term challenges or more deep-rooted issues with long-term consequences is vital for investors considering whether to remove an investment from their portfolio.”

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