Definitely not ones to invest in – The worst performing funds

We all know that funds can gain and lose value over time – that’s what investing is all about – but just how many funds perform too badly over time to be worth investing in?

One way to work out an estimate is to look for funds that spend too little time at the top of their sector, based on a long-term comparison of their value against others of the same type.

According to a recent report from FundExpert, that figure stands at a staggering 92% of all funds, while a total of 66 of the worst performers of all make the shortlist of so-called ‘dud funds’ that you “must not own”.

Definition of dud funds

FundExpert give funds a Vintage Score, based on the percentage of time over the past ten years that the fund has ranked among the top 40% of performers in its sector.

In order to be considered a Vintage Fund, this score must be over 60%, which means the fund has been in the top 40% of its sector for three fifths of the time or more, with extra weighting given to recent performance.

Only 8% of funds have beaten this benchmark over the past decade – and the 66 ‘dud funds’ have spent less than one fifth of the time among the top 40% in their sector by value.

Worst performing dud funds

The top 20 dud funds ranked in order of worst performance are:

Fund Name Vintage Score
Investec Target Return Bond 1.5%
HC Kleinwort Hambros Equity Income 2.3%
Royal Bank of Scot Extra Income 4.8%
HSBC Income 5.0%
Scottish Widows High Income Bond 6.9%
Janus Henderson Inst North American Index Opportunities 8.2%
S&W Taber Investment 9.2%
Scottish Widows UK Growth 9.2%
MI Charles Stanley UK & International Growth 10.0%
Janus Henderson UK & Irish Smaller Companies 10.5%
Majedie UK Smaller Companies 10.8%
Scottish Widows American Growth 10.8%
Santander UK Equities 11.3%
Scottish Widows Stockmarket Growth Portfolio 11.8%

Remember, the Vintage Score as defined by FundExpert measures the amount of time the fund has ranked in the top 40% of its sector by value in the past decade – meaning the worst performers have spent as little as 2-3 months above the required benchmark.

What does it mean?

FundExpert stress that this list is “not just the bottom 20% of funds”. Instead it is funds that have performed above the Vintage benchmark for less than 20% of the time.

Likewise, the ‘Vintage Fund’ designation given to a Vintage Score of more than 60% does not mean 40% of funds achieve this rating – in fact because of changes in value, only 8% have achieved a Vintage Fund rating over the past ten years.

For the 66 dud funds, it means they have spent at most two years out of the past ten in the top 40% of their sector, and often much less than that, making them a no-go if you want to see real value from your investments.

Does it matter?

You might argue that investing is about knowing which funds will perform best – and that the worst performers don’t necessarily matter.

FundExpert’s report says: “Trying to identify those funds that are outstanding due to skill rather than luck has been a perpetual journey for many investors, advisers and fund managers. It was an important trigger at the birth of the fund rating industry.

“But knowing which funds are duds is just as important… these duds are still attracting investors’ money. There is over £44 billion invested in these funds. This is a checklist of the funds you MUST not own.”

Full report free download: