What to do with a dog fund?

You may have heard of the term ‘dog fund’ – but what does it mean and what should you do if you are invested in one of these funds?

The financial press regularly publish lists of ‘dog funds’, simply put this refers to a fund which is deemed to be poorly performing, usually underperforming the allocated benchmark by, say, 5% or more, over a set period of time.

All investment funds fall into sectors – for example, UK equity income, technology and telecommunications or global emerging markets. Classifying them under these headings means that it’s easier to make comparisons. They can be compared both against each other and against the average performance for all the funds in that sector. If a fund is consistently showing as being below the sector average, then it can earn the ‘dog’ tag.

KEEP YOUR COOL

What’s really important to remember is that companies producing these lists aren’t giving specific advice or recommendations and results are compiled using past performance, which isn’t necessarily an indicator as to how the fund will perform in the future. Just because a fund may appear on this list doesn’t mean it should be sold immediately, as funds that have historically underperformed could turn performance around. A fund management company may take action to improve performance by altering the investment strategy or by appointing a new fund manager with a strong track record elsewhere.

Also important to bear in mind is that some funds adopt styles that are out of favour with the markets, such as contrarian or value styles, but might come back in favour soon. Some managers are suited to tougher times, others to rising markets. Some funds focus on growth, others on income.

RELY ON US TO KEEP A CLOSE EYE

Regular reviews are the key to ensuring your investments are still right for you. Keeping a close eye on the performance of your assets will mean that under-performing funds can be identified and, if necessary, changes made to your portfolio.

The value of investments and income from them may go down. You may not get back the original amount invested.