Who's the top dog?

By DAILY MAIL REPORTER
Updated: 19:00 EST, 11 September 2003

THOUSANDS of people have money in so-called dog funds giving appalling returns.

A dog fund, according to independent financial adviser Bestinvest, is one which has fallen short of its benchmark in each of the past three years and has underperformed by at least 10% in total over that period.

Bestinvest has highlighted ten popular UK investment funds holding almost £3bn of your money which have sold investors short over the past three years.

Bottom dog is Henderson UK Smaller Companies, which has turned every £1,000 invested into £307 over this period. This is very poor compared to the stock market index that measures small firms, the FTSE Small Cap, which returned £730 from £1,000 over the same time.

If you had put £1,000 in a similar - but better managed - alternative, such as Invesco Perpetual UK Smaller Companies, you would have £818, still a loss but a much smaller one.

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The money is divided between a range of different funds recommended by Bestinvest, one of which is Artemis UK Smaller Companies.

Charles, 27, an accountant from London, says: 'I sometimes ask questions and I do track the investments, but I'm happy with the advice they've provided.'

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Switching savings to another fund involves paperwork and cost. The cheapest way is to hold your investments through a fund supermarket - a kind of umbrella account - which allows switching between different funds and firms.

The two major supermarkets are FundsNetwork (run by Fidelity), which normally charges 0.25% to switch, and Vantage (run by IFA Hargreaves Lansdown), which has no fee. Even if it does cost, you will probably cover it by moving to a fund with a better return.

'It is very worrying that there is still a large amount of money in underperforming funds and that investors can be lethargic about moving away,' says Justin Modray of Bestinvest. 'Unfortunately, most dog funds are sold by tied agents. Banks and insurance companies are often repeat offenders in the dog stakes.'

The trouble with funds run by banks and insurers is that there is little incentive to improve them.

The so-called financial advisers (in reality salesmen) who work for the banks are unlikely to highlight poor performance to customers and suggest they move elsewhere.

Funds not run by banks or insurers are also more likely to take action if a fund underperforms. One example is the Invesco Perpetual UK Equity fund. Graham Kitchen, who runs the successful Invesco Perpetual Income & Growth, has been put in charge so better times are expected.

The Henderson fund also has a new manager and is already improving.