Under-performing investment funds ‘rake in £306m a year’ despite losses

Under-achieving investment funds, including Neil Woodford’s suspended flagship product, have raked in £306 million in fees each year, according to a new report.

Bestinvest’s “Spot The Dog” report highlighted Mr Woodford’s as the worst-performing fund holding more than £1 billion for the past three years.

The Woodford Equity Income Fund, which he froze in June after a spate of withdrawals, under-performed by 38% over that period, the online investment service said.

Bestinvest said £100 invested in the Woodford fund three years ago would now be worth around £80 due to the under-performance of its investments.

Mr Woodford has seen his reputation in tatters and faced questioning from the financial watchdog over the last two months after blocking investors from withdrawing cash.

Woodford’s fund was closely followed in Bestinvest’s report by a raft of under-performing funds from heavyweight financial institutions.

BlackRock, Fidelity and Standard Life Management Aberdeen are among the investment behemoths with funds in the list of 59 under-achieving funds, which together hold £32.6 billion in savings.

Bestinvest’s “top dog” was fund giant Invesco, which had six funds containing £11 billion in assets on the leaderboard of under-performers.

Funds are included in the list if they have delivered worse returns than the market it invests in for three consecutive 12-month periods in succession and by more than 5% over the entire three-year period assessed.

The latest figures are largely in line with Bestinvest’s report 12 months ago, which highlighted 58 poorly-performing funds holding £33.6 billion in savings.

Jason Hollands, managing director at Bestinvest, said: “Soaring global stock markets mean that even laggard investment funds have, in most cases, delivered positive returns over this period.

“While that might seem positive, it effectively means that strong overall markets have helped mask the failure of these fund managers to add any value for their expertise.

“We estimate that these funds are raking in £306 million of lucrative annual fees from investors, many of whom probably assume they are doing a decent job and will be blissfully unaware they could have earned a much higher return elsewhere.”