The latest Spot the Dog report published by BestInvest shows a sharp decline in the number of funds lagging their benchmark by 5% of more over the last three years in a row.

The number of dismally performing collectives declined sharply from the 150 identified in the previous report six months earlier to just 77. This improvement was due to a surge in previously out of favour and economically sensitive sectors since last autumn.

Leading the group of poor performers in terms of asset managers was HBOS, with £6.85 billion of assets in five funds. The sectors with the highest proportion of underperforming funds are focused on North America, where 22% of funds met the criteria.

This perhaps illustrates the difficulties in keeping pace with an underlying market which is consistently marking new record highs.

While acknowledging the insights provided by the BestInvest study, it is important to highlight that funds data can be misleading to investors.

For example, the three worst funds highlighted within the UK All Companies Sector on a three-year relative return basis are the Jupiter UK Growth (B54CH94), and both the Invesco UK Equity High Income (BJ04HP8) and Invesco UK Equity Income (BJ04HX6) funds.

The Jupiter UK Growth fund has a relative three-year return of -28%. The performance of both the Invesco UK Equity High Income and UK Equity Income funds has been similarly uninspiring recording a -25% and -21% relative three-year return respectively.

However there are reasons to believe that the performance of these funds may be about to change. The UK market has a natural predominance to sectors that have proved vulnerable to the pandemic including banking and energy. Moreover the UK Government’s lackadaisical response to the crisis meant that the UK economy experienced a more pronounced slowdown than other developed economies.

The successful rollout of vaccines in the UK has significantly improved the economic outlook. It is also worth considering that the Jupiter UK Growth fund is now under the auspices of a new fund manager Chris Smith who took over from Steve Davies in June 2020.

The fund has delivered significantly improved performance over the last six months, so for investors who hold the fund already it may be prudent to remain invested. Similarly both the Invesco UK Equity Income and High Income funds are under new stewardship following the departure of Mark Bennett in May 2020.

Ciaran Mallon and James Goldstone respectively are the new managers at the helm of the Invesco funds, though at present there are no signs of improving performance.

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