It is estimated that in the UK alone more than £8 billion is languishing in under-performing investment funds. Add all the money in offshore funds and other jurisdictions and the number is worryingly large.
These poorly performing funds, known as dogs, can be found in all sectors but action can be taken. If your money is stuck in the dog house you can do something about it.
What makes a fund a dog?
To be considered a ‘dog’ a fund will have under-performed the sector by at least 5% every year for a period of at least three years. There are funds that are even worse for longer and being left in them means that your returns will be poor and less than the average return.
The difference between a decent fund and an under-performing one can be substantial and that translates to the returns on your investment. As an example, take a look at this simple chart that shows the performance variation of a large number of offshore funds in the international equity sector.
The difference is huge here, and will vary by sector, but demonstrates why it is important to manage investments properly.
As well all know markets fall and rise so this is not just about actual returns but how a fund performs relative to the sector it is in. Without this relative information it is impossible to know if a fund is good, bad or indifferent, especially in a volatile market.
How do you tell if you have any dog funds?
The difference between the best and worst funds is usually significant but how do you find out what you have and if they are any good? If you have a professional independent financial adviser who is managing your investments, whether these are pensions or direct investments, you should be receiving ongoing advice and information, not only with a valuation, but also with real fund performance details and recommendations.
Too often I speak with people who have had an investment that has performed badly but it turns out that they have been left in poor funds with no management and this can mean that they don’t see any growth, even in a rising market. The fault is ofyen not the structure itself but the way it has been set up and the lack of expert management.
Even the largest global fund managers have dog funds, so don’t rely on a household name. Insurance company funds have historically been some of the worst due to the inertia of people in UK pension funds assuming they are being taken care of. Being in the wrong funds can be very costly indeed as your plans could easily earn a lot less over 10 years.
Can I make changes & how can my investments be managed?
In the UAE, a common investment vehicle is a regular premium savings plan from an insurance company, although ones with 20 or 25 years terms are best avoided, and in all cases the funds must be managed properly. The fund options are limited to those available on the insurance company list but there are usually between 100 and 250 to chose from so an experienced adviser can still structure and manage a suitable portfolio.
When it comes to portfolio bonds, or the super flexible open-ended platform investments, the choice of funds can be up to 80,000 globally so not only are the choices far wider but it is arguably even more important to manage the investment properly.
See link for info on flexible investing: The future of investing is… flexible
Structuring an investment portfolio is part science, part art and many factors need to taken into consideration. These include the timeframe, the investors risk profile and personal preferences, as well as charges, to give the right allocation of assets with diversification. What is going on in the world should also be factored in and experience can make a huge difference.
I use a variety of professional investment tools, that provide in-depth information about funds, when managing investments. I can be a fund geek so you don’t have to! My clients get regular written reviews with information about the performance of each fund in their portfolio from an independent source, not from the insurance company or fund manager. Changes will be recommended if required and this regular, professional and experienced management keeps investments on track.
The business model of many ‘advisers’ in the UAE is to take a great deal of hidden commission at outset so it is not in their interest to properly manage investments as it is time-consuming, and that is assuming they have the knowledge and tools to do so. My business model is very different in that the focus is on advice and servicing over the long term so I do not charge excessive commissions when setting up investments but instead have a fee style structure for ongoing management that is fair to all parties and, most importantly, is transparent.
If you think you may have any dog funds in your plans, or aren’t getting proper reviews, you have the option to change adviser so that your investments can be managed with your interests at heart. Oh, and I’ll mention that I actually really like dogs, just not the lack of peoper investment management or poor funds!
If you would like a chat about your investments and are interested in active future management, or have queries about any aspects of personal financial planning email me at firstname.lastname@example.org
I write articles such as this one as part of the holistic personal financial planning service that I provide to expats, and the general consumer, financial and legal information that I provide in The National newspaper, and on the Facebook group British Expats Dubai.
Please take a look at the other useful articles on this website.