The worst-performing investment funds revealed

The investment funds offering the worst value for money could see you losing more than half of what you put in or falling as far as 70% behind the returns of similar funds, according to a new report.

Investment platform Bestinvest has published its bi-annual Spot the Dog report, which highlights 137 funds delivering the worst returns.

Here, Which? takes a look at the disappointing funds and what went wrong, and offers advice for picking investments and knowing when to call it quits.

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Which funds are the worst performing?

Funds are included in the report if they produce worse returns than the ‘benchmark’ in their sector over three consecutive 12-month periods, and underperform by 5% over the full three years. 

The benchmark is generally an index that invests in everything in the sector – for example, UK equity funds are compared to the MSCI United Kingdom All Cap Index.

This means a fund can be included in the list and still produce positive returns – as many do. But the very worst in the list left investors worse off after three years than when they first invested.

10 biggest under-performers 

The Baillie Gifford Global Discovery Fund is no longer the worst-performing fund, with Artemis Positive Future Fund taking the dreaded top spot. 

Though the Baillie Gifford Global Discovery Fund would have still left you the most out of pocket, it was compared to a benchmark of small companies in the global sector that delivered lower returns than the benchmark the Artemis Positive Future Fund was held to, which did well over three years – making the fund's underperformance more pronounced.

The Artemis Positive Future Fund is a high-risk global fund that selects 35-45 companies believed to 'disrupt established industries' and offer positive environmental or social impact. The fund appointed a new manager in March 2024, and is transitioning to a new approach.

• Find out more: investment funds explained 

What are the biggest underperforming funds?

The 10 largest funds in the list account for nearly half of the money held across all 137 funds in the list. While these funds aren't the worst performers, they have more people invested who are losing out compared to the benchmark.

10 biggest underperformers by size of fund

Though St James's Place has halved the number of its funds in the overall list of 137 funds from six to three, their huge SJP Global Quality fund is the biggest, with more than £10bn invested. In addition to its disappointing returns, the fund has a huge 1.83% ongoing charge, compared to an average of 0.8% for an actively managed fund or 0.08% in the passively managed global sector.

Why are some funds doing badly?

Some of the funds' relatively poor standing is for very clear reasons. For example, many sustainable funds appear on the list because they weren’t invested in oil and gas stocks, which drove additional returns in the sector benchmark. 

Certain active funds that have specific stocks picked by a manager have also struggled against their benchmarks because they don’t include the ‘magnificent seven’ US tech stocks, which have driven strong returns. Nearly a third of the funds on the list (43) are in the global sector that has been impacted.

But, just because that’s holding them back now, doesn’t mean it won’t be a point in their favour if tech stocks start to lose their shine. Recently, share prices have taken substantial hits as investors become wary of overemphasising the impact of AI.

How do you know when it's time to sell a fund?

A fund not performing against the benchmark isn’t always a reason to sell your stake in it straight away. There’s a balance to be found between cutting your losses and keeping a level head during ups and downs in the market.

Some funds that appeared on the last version of the list, published in February 2024, are no longer underperforming. So, reacting too quickly could see you sell when the fund is performing badly, only for things to pick up again when you can no longer benefit.

Jason Hollands, Managing Director of Bestinvest by Evelyn Partners, says: 'For investors choosing to invest in actively managed funds, finding managers with the right skills to deliver superior long-term returns is vital to justify paying the fees to be invested in those funds. With many fund managers failing to achieve this over the long run, the report acts as a guide to encourage investors to keep a closer watch on how their investments are performing to assess what action, if any, is required and when.  

'Funds can stumble for a myriad of different reasons – from poor decision making or a run of bad luck to instability in the team or because the fund has a style or process no longer favoured by recent market trends. Identifying whether a fund is struggling with short-term challenges that will later pass, or more deep-rooted issues with long-term consequences, is vital for investors considering whether to remove an investment from their portfolio.'

Here are some things to consider before you sell your stake in a fund:

• Take a look at the longer-term performance – Ideally, you’d hold an investment for at least five years and some investments are designed with this in mind, so can you expect positive returns over a longer period?
• Consider external pressures – Are the problems affecting the fund temporary – for example, the effects of a one-off event? Or is it likely to be part of a long-term decline?
• Are the fees unreasonable? – If poor returns are coupled with a high ongoing charge figure (OCF) – expensive would tend to be approaching 1% and above – then you might be able to find better value for your money elsewhere.

How do you pick the right funds?

Unfortunately, there’s no straightforward answer to picking the funds that will get you the best returns because you can’t see into the future. To future-proof your investments to the best of your ability, you can diversify what you invest in, so it doesn’t matter as much if one of the funds you invest in hits a rough patch.

To balance your investment portfolio, make sure you’re invested in different types of assets – a mix of shares, bonds and cash – as well as location. This could mean investing in funds across the different fund sectors, like a global fund, a UK equity fund and an emerging markets fund.

Every year or so, you’ll need to check back in to rebalance your portfolio, as the weighting will shift depending on the growth of each respective element – for example, the growth in your shares investments may mean the balance you planned as 80% shares and 20% bonds has shifted to 90% shares and 10% bonds.

If you’re not confident in your ability to do this, you could work with an independent financial adviser who can work out the balance for you.

• Find out more: how much financial advice costs