At Intelligent Investments, our discretionary investment managers don’t rely on external fund research as rolling up our sleeves and performing their own due diligence is fundamental to their investment process and being selected by Intelligent Investments. Not only is it important from a fund selection point of view, it is crucial from a portfolio construction point of view as it’s not really possible to combine funds together effectively into a portfolio unless one is intimately aware of their individual characteristics.
That said, not relying on third party research isn’t the same as being oblivious to what others are thinking. We’re a curious bunch, so when we come across analysis from others we quite enjoy pulling it to pieces to see what ideas are worth internalising, which methods we can learn from and what is, at best, just noise.So it was with some interest that we examined two pieces of recent fund research, one of which was Bestinvest’s popular Spot the Dog guide (available here: https://www.bestinvest.co.uk/research/spot-the-dog).
Spot the Dog’s methodology is reasonably sensible. They highlight funds that have three discrete years of under-performance and more than 5% underperformance in total over those three years. These ‘Dogs’, they suggest, may not be automatic sells but are certainly worthy of further investigation.
We’ve heard a lot about this particular report in previous years because, as you can imagine, the ‘Dogs’ it highlights are pretty widely reported on and so easily make it on to our fund news radar.
Unsurprisingly, none of the funds we’re holding for clients are listed as ‘Dogs’. Our discretionary investment managers research funds carefully to weed out bad funds, and then then monitor them closely to eliminate any that make it through the initial selection net. Notice, however, that I said weed out ‘bad funds’ instead of weed out ‘Dogs’ in my previous sentence. Whilst there’s going to be quite a lot of overlap, the two aren’t necessarily synonymous and we need to avoid lazily assuming that they are. After all, there’s a world of difference between buying a ‘Dog’ with strong recovery prospects (an unlucky, but good fund) and buying a poor fund that underperforms for three years and thus becomes a ‘Dog’.
Whilst we don’t hold any ‘Dogs’, for interest our discretionary investment managers do hold four funds Bestinvest list as Pedigree picks – what they consider the best of the best. This is gratifying, but actually what is more important than just holding them is the length of time they’ve held them for – after all, holding funds with great three year track records is no good to anyone if you’ve only just bought them!
Pedigree picks held by PortfolioMetrix clients and time held for:
- Liontrust Special Situations (held for over 4 years)
- Jupiter European (held for over 4 years)
- Somerset EM Dividend Growth (held for over 3 years)
- Old Mutual North American Equity (held for almost two years)
To learn more about PortfolioMetrix and the benefits of having your investment or pension professionally managed by an award winning, UK regulated, discretionary investment manager, click here.