Spot the Dog reveals that the funds are not performing

Funds from Artemis, Baillie Gifford and Axa Investment Managers were among the worst-performing equity funds over the past three years compared to their peers, in a list dominated by those under-exposed to technology or energy shares, they found new research.

Some 137 funds holding £53.42 billion on behalf of investors regularly underperformed their relevant benchmarks, with funds that avoided AI stocks and energy companies performing the worst, in a sign of “extreme concentration ” of the market, according to wealth. Bestinvest manager.

The so-called Magnificent Seven — Apple, Microsoft, Amazon, Alphabet, Meta Platforms, Nvidia and Tesla — have grown so large that they account for about a fifth of the MSCI World Index and a third of the US S&P 500 Index. Their dominance helps explain why global fund managers who haven’t invested in this “highly concentrated band of influential stocks” have “struggled to consistently beat the markets,” said Jason Hollands, managing director of Bestinvest, part from Evelyn Partners.

Bestinvest’s Spot the Dog report focuses on funds that have consistently outperformed their benchmark over three consecutive 12-month periods and by 5% or more during that time.

According to the findings, the Artemis Positive Future fund, which manages just £10m of investors’ money, was the worst performer, underperforming its benchmark by 71% over three years. The Baillie Gifford Global Discovery fund, which manages £490m, came in second, underperforming the benchmark by 65%. A £100 investment in this fund three years ago would now be worth just £40, fee-free.

The report comes shortly after renowned British fund manager Terry Smith defended his decision to avoid US giant Nvidia, which briefly became the world’s most valuable company this year.

Smith said his £25bn Fundsmith Equity portfolio, which includes stakes in Apple, Meta and Microsoft, avoided Nvidia because his team “has not yet convinced itself that its outlook is as predictable as we- I wanted”. His fund still delivered more than 9% over six months, which he said “would normally be cause for celebration”.

While tech and AI stocks have tumbled over the past few years, they suffered from a sharp selloff in early August on broader concerns about the state of the U.S. economy. Some funds, such as Blue Whale, which is backed by billionaire Peter Hargreaves, have been buying Nvidia and other tech stocks to take advantage of falling prices.

Hollands said “the large number of funds variously labeled sustainable or responsible (in the report) is likely due in part to the stellar performance of oil and gas stocks in 2021-22.” The MSCI World Energy Index delivered a total return in sterling of 98% over the three years to the end of June – well ahead of the MSCI World Index’s total return of 28%.

Hollands pointed to the 38% drop in the global alternative energy index over the period, “highlighting why managers focused on green energy have struggled.”

The report shows that UK equity funds have also lagged behind. A quarter of these comprise ethical and sustainable funds, which lack exposure to the sizeable energy and commodities sectors of the UK market.

The worst performing funds for all UK companies include L&G Future World Sustainable UK Equity Focus, Liontrust UK Ethical and Fidelity UK Opportunities.

St James’s Place Global Quality Fund was among the biggest consistently underperforming products, managing around £10.69bn. A £100 investment in this fund three years ago would be worth £106 today, net of fees. Fidelity’s Global Special Situations Funds, which oversees £3.34bn, and its Asia fund, £2.71bn, also fell into this category.

European equity laggards include Baillie Gifford European, L&G Future World Sustainable European Equity Focus and Liontrust Sustainable Future European Growth.

“Once again, the latest Spot the Dog report serves as a timely reminder for investors to check their portfolios at regular intervals to assess how well their assets are performing,” Hollands added.

Liontrust, Artemis, Baillie Gifford, Fidelity, L&G and SJP acknowledged the performance of their funds and noted that it is not indicative of future results.

Artemis added that a new manager had been running the Positive Future fund since February and that changes were being made.

“Performance charts are lagging indicators, especially at times like this when we think there is an inflection point in the market cycle,” Liontrust said.

Justin Onuekwusi, chief investment officer at SJP, said the costs for the external fund manager, administration and consultancy are bundled into one ongoing fee. “Most of the funds we’re compared to in this analysis don’t include advice and management fees, so unfortunately it’s not a like-for-like comparison.”