St James’s Place fares badly in Spot the Dog funds league

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The UK’s largest wealth manager has been left ruing a series of global bets, after the recent market rally in US tech companies led several of its funds to underperform.

St James’s Place accounted for £29.3bn of the £46.2bn held in so-called dog funds, according to a biannual report by platform Bestinvest, which is owned by wealth manager Evelyn Partners. The bulk of these funds were held in global and European funds.

Alongside six funds badged by St James’s Place are 50 others marketed by different firms that have underperformed across a three-year period. This is up from 44 funds featured on the list in February this year, while total assets under management have more than doubled in the same period. 

Tom Beal, director of investments at St James’s Place, defended the performance of the funds which lost out because they were highly diversified — a strategy which limited exposure to any one segment, such as US tech. “Diversification is a key benefit of investing in a portfolio, giving a smoother exposure to the ups and downs of markets,” he said.

The wealth manager has been struck alongside several fund managers, as tight market conditions and efforts to diversify hampered performance.

Three-quarters of total assets in the “dog” list were in underperforming global funds, which held a smaller proportion of shares in large tech companies than relevant indices, meaning they lost out as firms including Apple and Microsoft drove a rally in the S&P 500.

“Some global funds have taken a more diversified approach, including emerging markets, and if you have done that over the past three years it will have affected performance,” said Jason Hollands, managing director of BestInvest. 

BestInvest scanned 895 mutual funds with a combined value of £633bn to compile the report. Performance was measured net of fees, and funds were included if they fell short of an appropriate benchmark, primarily the MSCI UK All Cap Index, by at least 5 per cent over the three-year period. 

St James’s Place delegates fund management to external managers, while four of the six funds mentioned in the Bestinvest report have undergone management changes in the past two years. Earlier this year, St James’s Place said previous management continued to affect performance.

Ben Bathurst, an equity research analyst at RBC, said the external managers’ model meant the company could change management in the event of chronic underperformance, but he warned any turnaround could still be protracted. 

St James’s Place reduced fees on 14 funds by between 0.02 and 0.04 percentage points this year in response to underperformance.

Other fund managers included in the dogs report were Columbia Threadneedle and Schroders. The latter was responsible for four chronic underperformers in the list including two managed on behalf of Scottish Widows, an improvement on earlier this year when it accounted for 10 funds.

Schroders said it was an active manager navigating short term volatility and was “dedicated to delivering robust investment performance”.

Columbia Threadneedle, with four dog funds, said: “The 2022 market style shift towards value, against a backdrop of higher interest rates and higher energy prices, impacted short-term returns for these portfolios.”

Separately, the Financial Conduct Authority on Thursday warned fund managers against adopting dubious tactics to measure performance. It said fund managers continued to attribute underperformance to out-of-favour investment styles, while few had considered fee reductions.