A significant part of our role as financial advisers is to review our clients portfolios and, where appropriate, recommend revisions.
Some funds will inevitably perform worse than others and it is important to review investments regularly. Unfortunately, many portfolios we come across particularly from newer clients haven’t been reviewed for many years or indeed never and it a regular occurrence that ‘dog’ funds are in evidence. These are funds that have consistently performed poorly against their benchmark dragging down the returns on the whole portfolio. If these are not weeded out, then their long term effect can be pretty devastating.
Taking a simple example of an investment of £25,000 invested in a fund that returns 5% p.a. instead of a benchmark (sector average) 6% p.a. over 10 years, net of charges. The investment would be worth £40,700 whereas the benchmark would be valued at £44,700, £4,000 more. We would have to say that targeting the average would be a minimum objective for our clients and 1% under-performance is by no means as bad as it gets with some funds!
There is a simple solution to the above to avoid the pitfalls of a dog fund. Have your portfolios regularly reviewed either by yourself or by a financial adviser.