The meetings, which saw shareholders vote on Saba’s proposals to replace the current boards with their own nominees, both saw investors back the incumbent leadership.

Over 60% of votes cast in each meeting were against Saba’s proposals. 98.5% of Baillie Gifford US Growth’s non-Saba shares voted against the resolutions, while just 0.8% of Keystone’s non-Saba shares backed the US hedge fund’s proposals.

See also: Gold funds surge in January as tariff fears mount

The result follows on from a similar vote at Herald Investment Trust on 22 January, at which investors also backed the existing board.

CQS Natural Resources Growth & Income and Henderson Opportunities Trust will hold their own general meetings on Saba tomorrow, before the European Smaller Companies Trust meets on 5 February.

Edinburgh Worldwide shareholders will vote on 14 February.

As with Herald, shareholder engagement was high with 78.4% of total voting rights being used at the Baillie Gifford US Growth trust meeting.

Richard Stone, chief executive of the Association of Investment Companies (AIC), said: “It’s encouraging to see so many shareholders of Baillie Gifford US Growth and Keystone Positive Change come out and vote on this critical issue.

“The impressive turnout of retail investors demonstrates what can be achieved when shareholders are informed, enabled and motivated to have a say on their trust. Our campaign ‘My share, my vote’ aims to change the Companies Act so everyone receives information on their company and can vote.”

Moving forward, the strategy will be known as the Baillie Gifford Monthly Income fund.

However, the fund’s investment process will remain unchanged. The strategy aims to deliver a natural monthly income alongside capital returns, which look to grow in line with UK inflation over the long term.

See also: GAM Investments hires Janus Henderson management trio

The strategy will continue to be managed by Steven Hay, Lesley Dunn and Nicoleta Dumitru.

James Dow, who co-manages the firm’s Responsible Global Equity Income fund and the Scottish American Investment Company, has been replaced by Jon Stewart on the fund’s portfolio construction group.

Stewart will focus on property investing, while Dow will remain linked to the strategy as its equity allocation uses the Responsible Global Equity Income model.

See also: PA Live A World Of Higher Inflation 2025

James Budden, head of global marketing at Baillie Gifford, said: “Ultimately, we believe the term ‘Monthly Income’ is more appropriate as it describes how the fund seeks to provide a resilient income stream and grow capital in real terms.

“No changes to the philosophy and process have been made to the Baillie Gifford Monthly Income Fund and we are confident that the name change gives investors greater clarity around their investment choice. We think this fund provides an excellent income solution for investors many of whom might be a long time retired.”

Major European energy firms are poised to offer “big strategic value” as the world transitions towards decarbonisation, according to JOHCM’s Ben Leyland.

Leyland, who co-manages the JOHCM Global Opportunities fund alongside Robert Lancastle, cited UK oil giant Shell as being primed to benefit from this long-term theme over the next decade and beyond. Shell currently accounts for a 3.3% weighting in the fund, according to its December factsheet, marking it as the seventh-largest position within the 39-stock portfolio.

“What we’re really interested in is the need to invest in energy infrastructure over the next 10 to 15 years, and to move energy infrastructure broadly in a decarbonised direction,” he explained.

“It’s not about taking clear views on whether this is solar, wind, renewables or nuclear – or on whether carbon capture and storage, or hydrogen technologies, are the next big thing. These have their moments in the sun and then dissipate.”

In terms of European energy majors generally, Leyland said they tend to focus more on ‘midstream’ and ‘downstream’ opportunities as opposed to ‘upstream’. ‘Upstream’ refers to the exploration and production stages, while ‘midstream’ includes storing, processing and transporting oil, natural gas and gas liquids. The ‘downstream’ stages involve refining crude oil into fuels.

Leyland explained: “The recent action to launch US energy measures has been to double down in upstream.

“What we like, particularly when it comes to Shell, is that while they do have upstream [capabilities], the real value of the company is the midstream and downstream assets, which ultimately are going to have
big strategic value in the transitioning world.”

He added that Shell’s gas-trading division is also attractive, which was supplemented by the firm’s £47bn acquisition of gas exploration firm BG in 2015.

“There are multiple positives. The fact that LNG [liquefied natural gas] is a tradable transition fuel to help the world towards the decarbonisation agenda is one. Also, the fact Shell is paring back its downstream assets and moving its refinery hubs towards areas such as Rotterdam.

“These areas are well located in that they are industrial hubs for other hard-to-help sectors. So, steel-making or cement companies, which are going to find it very difficult to meet all of those net-zero targets – they are going to need technologies like carbon capture and storage in order to make those commitments real.”

Leyland added that Shell is one of the largest petrol station forecourt providers in the world. According to the company’s website, it has 40,000 forecourt locations across the globe as well as an additional 10,000 partner sites. In the UK, Statista figures show that Shell has the second-highest percentage of forecourts at 13.9%, second only to Esso at 15.2%.

“It’s up to [the consumer] whether they buy a petrol, diesel or electric [car], but at some stage, if we’re going to go down the EV route, we’re going to need charging stations for that. As the strong become stronger, the large will become larger. The tail of smaller companies, which cannot make that transition as effectively, is going to start atrophying.

“So this, alongside the strategic value of its midstream and downstream assets to help the energy transition, is what we think will help Shell generate strong returns.”

‘Where profit and purpose go hand in hand’

Nubank and Grab are two stocks which are tackling significant global challenges but are also set to generate strong long-term returns, according to Baillie Gifford’s Rosie Rankin.

The investment specialist director said Brazilian firm Nubank, which is held within the firm’s £1.9bn Positive Change fund, is one of the world’s largest digital banks. Currently headquartered in São Paulo, the Russell 1000 component was founded in 2013 and has more than 7,000 employees. According to a Bloomberg report in November, however, the bank’s parent firm Nu Holdings is considering moving its legal base to the UK.

“[Nubank] was founded with the intent of providing an alternative to the relatively expensive traditional Brazilian banking system,” Rankin explained. “When we first invested, it had around 58 million customers in 2021. Fast forward to today, and that’s around 100 million customers.

“It is incredible growth in a relatively short period of time, and that’s because it’s offering products and services that are really useful to micro and small enterprises.”

Seven out of 10 new jobs created in Brazil are now within micro and small enterprises, according to Rankin, meaning the ability to access affordable banking products easily is an “important driver for change”.

Similarly, an impact stock capitalising on the growing digitalisation across emerging markets is Grab, which she describes as a “southeast Asian super-app”. “Its core businesses are ride-hailing and restaurant delivery, but it does a whole range of stuff, from delivering packages and groceries to e-wallets and financial services. As a result, it has managed to build up a really impressive market share.”

Grab Holdings, which is based on One-North in Singapore, operates across Malaysia, Indonesia, Myanmar, Thailand, Vietnam, the Philippines and Cambodia, as well as its home market.

Hailed by Reuters as the biggest technology company within the south-east Asian region, the company was founded in 2012 and floated on the Nasdaq in 2021, following a SPAC merger with US investment firm Altimeter.

According to Rankin, Grab currently accounts for 70% of the entire ride-hailing market, within around 5% of adults in south-east Asia using the app at least once per month. “That means 95% don’t, so there’s huge potential there in terms of growing the number of users,” she reasoned. “And because it’s so innovative in developing technology solutions, it has been a real magnet for attracting tech talent.”

Rankin added: “Grab has many different services via its app, but they’re united by that one purpose of helping to improve lives and prosperity within south-east Asia. And so, ultimately, it’s a great example of a business where profit and purpose will go hand in hand.”

Through the lens of luxury

Investors shouldn’t give up on luxury goods stocks despite lacklustre results from the sector, according to senior analyst at Killik & Co Mark Nelson, who said the firm’s managed investment service team is taking “a defensive approach” to these types of companies.

“Luxury stocks have been getting a lot of attention of late, with softness in the market being largely driven by the continued weakness of the Chinese economy,” he explained. “The current predicament raises two big questions for investors: is there a long-term structural issue in China and, if that is not the case and it is just a cyclical downturn, when will the good times start to flow again?”

One stock the team owns shares in is Franco-Italian eyewear company EssilorLuxottica, which Nelson said combines a medical device business through its lenses, with a luxury goods one through its frames.

“[It] plays to the structural trend of the growing need for eyecare due to the increasing prevalence of eye conditions among the growing population due to changing lifestyles and demographics. Management has stated that 75% of revenues are vision care-related and therefore less discretionary in nature.”

Generally speaking, the team at Killik doesn’t think the slowing luxury demand in China is structural, despite the fact many investors are drawing comparisons between China and Japan in the 1980s. “While there are similarities such as ageing populations, there are some key differences, too,” Nelson pointed out. “For a start, there remain millions of people who have not yet reached middle-class status in China, and it is this emerging middle class that has been a key driver of luxury goods demand.

“China is an ambitious nation, with grand geopolitical goals which we believe are more likely to be achieved with a prosperous population and a growing middle class. We therefore expect the Chinese government to do whatever it takes to provide the economy with the necessary support in pursuit of these goals.”

In terms of when the performance of the luxury goods sector will turn around, the analyst said this is “much trickier to predict” but that there are “early causes for optimism”.

“China does seem to be making significant attempts to re-ignite the economy via stimulus measures. Additionally, the easing of the interest rate cycle in the developed west should be supportive of increased demand for those markets,” he reasoned.

“Finally, Trump’s election in November’s US election is being seen as a positive for the sector overall, with lower taxes and a currently buoyant stockmarket,both positive for the wealth effect and, in turn, luxury demand in the US.”

Not only this, but lower valuations in the sector could make it ripe for M&A deals, according to Nelson, with Italian luxury fashion brand Moncler allegedly interested in acquiring British fashion house Burberry.

This article first appeared in the January issue of Portfolio Adviser magazine

Over the past year, the US hedge fund has built large positions in Baillie Gifford US Growth; CQS Natural Resources Growth & Income; Edinburgh Worldwide; European Smaller Companies; Henderson Opportunities trust; Herald and Keystone Positive Change investment trusts.

Votes will be held in the coming weeks over Saba’s proposal to replace the boards of each trust with its own directors.

See also: Home REIT publishes overdue 2023 results as board steps down

In a webinar held today (14 January), the Saba Capital founder said that if the firm is successful in replacing the current boards, Saba would seek to merge either some or all of the trusts into a new listed vehicle and invest back into UK assets.

“If we’re given the opportunity, we would launch this Saba product that I think the UK sorely needs, given how every institution has been a seller,” said Weinstein.

“We are the white knight of the UK market. Everyone is a seller, we are a buyer.”

He added: “We are here to not just buy your trusts, we are here to buy billions more and rehabilitate this broken set of trusts and what is – in some ways – a broken industry that hasn’t been able to grow.”

He also took aim at the current boards of the seven trusts, criticising them for poor performance and having a lack of ‘skin in the game’.

Speaking to investors, Weinstein added: “This discount is not some ephemeral thing. It is costing ‘mom and pop’ investors in these trusts enormous amounts of money year in and year out. We are on the same side as you. We are invested alongside of you.”

Meanwhile, he also claimed that Saba’s action has already generated returns for investors with discounts narrowing over the last month.

“My prediction is in the coming three months, many of the trusts that Saba holds will announce shareholder friendly actions that will make you additional hundreds of millions of pounds that you would not otherwise have made because they want to head us off at the pass.

“The entire UK closed-end fund space in general will see smaller discounts, especially if we win and we have this fire power to buy up UK trusts. We’re talking about 83.3% invested outside of the UK that we may bring up to 100% invested in the UK.”

He also criticised aspects of the coverage of Saba’s plans, claiming that information provided by trust boards to shareholders comparing the performance of Saba’s own funds was “blatantly incorrect”.

See also: Update: Saba plans full cash exit option for Herald

Board independence

A large part of the concerns over Saba’s plans has been over the independence of boards, given that Saba is aiming to replace each trust’s board with directors who would be affiliated with Saba.

However, he said that having just two board members would be a temporary measure, with independent NEDs being appointed later on.

Reacting to the webinar, Laith Khalaf, head of investment analysis, AJ Bell, said that if Saba wins some of the forthcoming votes, the investment trust industry may have to prepare for more of the same.

“Whatever the results of the upcoming shareholder votes it will be interesting to see if the arrival of Saba prompts investment trust boards to take more measures to address large discounts,” he said.

“Shareholders will soon get the final say on whether Saba carries the day or not. Investors in each trust need to carefully examine the options and arguments laid out before them, both by Saba and the existing board, before coming to a decision and voting their shares.

The first vote will take place on 22 January, where Herald investors will have the opportunity to either back Saba or the current board.

The US hedge fund acquired large stakes in each trust and used its influential position to recommend the complete replacement of both boards, as well as five other UK trusts.

It claimed the move would improve performance, yet Keystone’s chair Karen Brade said Saba’s proposal was made purely in its own self-interest.

“We are appalled by Saba’s actions and conduct,” she said. “We believe its proposed resolutions would be highly detrimental to the interests of all other shareholders.

“Be under no illusion – we believe this US hedge fund manager is acting opportunistically, seeking to seize control of the board without a controlling shareholding, to pursue its own agenda.”

Saba’s plan to replace each board with its own candidates would give it “effective control of the company,” added Tom Burnet, non-executive chair of Baillie Gifford US Growth.

While returns did drop 9% over the past three years, the trust’s board has been proactive in making improvements, with performance soaring 61.7% in the past year.

“Saba wants to subvert all of this,” Burnet  said. “Their proposals lack detail and if implemented, could destroy the board’s independence, radically alter the investment strategy of the company and prove highly disruptive to shareholder value.

“We urge all shareholders to make their voices heard and to vote against Saba’s self-serving and destructive proposals.”

The US activist investor said yesterday (18 December) that it intends to improve poor performance and narrow wide discounts on seven trusts it has stakes in by removing each of their boards.

“We believe the current boards of directors and investment managers have failed to perform versus their benchmarks and have, therefore, required Saba’s investment to narrow the deep trading discounts to net asset value and deliver returns for shareholders,” Saba said.

In response, the boards of Keystone Positive Change, Baillie Gifford US Growth, Edinburgh Worldwide, Henderson Opportunities, and CQS Natural Resources Growth & Income trusts advised their shareholders to ‘take no action’ in votes Saba intends to hold at general meetings next year.

Herald issued no response, while European Smaller Companies acknowledged Saba’s requisition notice but made no recommendation to shareholders.

Performance has suffered and discounts have widened on each of these trusts – which Saba owns between 19 to 29% of the shares in – but QuotedData’s head of investment company research James Carthew said the proposed action is not in the best interest of shareholders.

“Saba’s attack on the UK investment companies industry is entirely self-serving,” he said. “It aims to seize control of these funds to impose its own agenda, book a short-term profit on its investment and then – we suspect – extract management fees from a strategy that investors have shown no appetite for.”

The US hedge fund has requisitioned the boards of Baillie Gifford US Growth Trust, CQS Natural Resources Growth & Income, Edinburgh Worldwide Investment Trust, European Smaller Companies Trust, Henderson Opportunities Trust, Herald Investment Trust and Keystone Positive Change Investment Trust.

Saba, which owns 19-29% shares in each trust, is seeking to replace the boards of each trust. The activist investor said that it believes new boards are necessary to narrow discounts and correct underperformance.

See also: Saba Capital and its intentions for the UK investment trust industry

Boaz Weinstein, founder & CIO of Saba Capital, said in an open letter to shareholders: “Performance demonstrates that they have not taken sufficient steps to resolve the trusts’ structural issues, depriving shareholders of superior returns. While there are multiple levers to narrow these persistent discounts, inaction has been the consistent course of current leadership.”

At each meeting, which Saba said would be scheduled by early February, shareholders of the trusts will vote on removing all current directors of each trust and replacing them with new candidates.

If appointed, Weinstein said the new directors would assess all options available to the trusts, including terminating the trusts’ current investment management agreements and potential combinations with other investment trusts.

Reaction

Saba has been building its positions in investment trusts over the last two years and, after a long wait, it has finally publicly declared its intentions.

Stifel analyst Iain Scouller said: “Overall, we think it is helpful for the sector to have Saba’s game plan revealed and shareholders and boards can now take positions for or against these proposals. We also think given Saba’s significant voting power by the virtue of the size of their stakes, that they will be successful in changing the boards of a number of the trusts involved.

“We think it is now over to the boards of the Trusts to argue why Saba’s proposals should not be supported – they will need to come up with some strong counter-proposals themselves.”

Matthew Read, senior analyst at QuotedData, said that while clarity on Saba’s interests in the sector was welcome, he argues there is an ‘obvious flaw’ in their strategy.

“Saba wants shareholders to replace the current boards and deliver on its plan to ‘quickly deliver substantial liquidity and long-term returns for all shareholders’.

“However, those two are often mutually incompatible, particularly for some of the funds it is targeting where the underlying holdings are less liquid – Herald being the obvious example as it is a big fund with a huge tail of small illiquid positions that trade by appointment that could take years to sell off and you would likely move the market against you in many of these, particularly once the market spots you as a forced seller.”

See also: How do asset managers logistically prepare for major events?

He added that the call for substantial liquidity also ignores the unquoted positions held by trusts such as Baillie Gifford US Growth and Edinburgh Worldwide, while Read questions the logic behind targeting Keystone Positive Change, which is considering folding into its open-ended sister fund.

“This and the other challenges we highlighted above have long made us feel that Saba doesn’t really understand some of the funds that it is invested in,” Read added.

“It is well-documented that Saba has been successful with similar attacks in the US but the UK closed end fund market is fundamentally different. Standards of corporate governance are higher, and returns have generally been better, so this sort of approach makes less sense, particularly now that progress has been made on addressing problems such as the cost-disclosure issues and so discounts are now retrenching.

“It seems to us that their approach is very short-term in nature and this highlights a long running issue that, because many retail investors hold their shareholdings through platforms and do not tend to vote, that large professional investors get a disproportionate amount of the vote.

“This can lead to outcomes that are not in the interests of all shareholders and so we think that it is all the more important that shareholders in these funds make sure their interests are being protected and that they make sure they get out and vote.”

Following smaller companies, the financials and financial innovation sector returned 9.16% in the month while North America returned 7.22%. In the worst-performing sectors, Latin American led with an average loss of 4.84% and China following with a loss of 2.25%. Trump has previously voiced strict policies against both regions, with tariffs being a hot topic of discussion following his win.

Ben Yearsley, director of Fairview Investing Limited, said: “After Donald Trump’s decisive victory in the recent election and his Republican Party gaining control of both houses of Congress, it wasn’t a surprise seeing a strong rally in US equities.

“This is despite many strategists’ pre-election saying a split presidency/congress would be the best outcome. Markets like certainty even if that comes with a large dose of unpredictability. The certainty comes from Republicans being charge of all parts of the US executive, the uncertainty comes from not knowing what President Trump will do or say next.”

See also: US anticipated as top 2025 performer by 40% of fund groups

All of the top ten performing funds for November were US strategies, led by Morgan Stanley INVF US Growth with a return of 23.83%. Artemis, Alger, Driehaus, Franklin Templeton, New Capital and Baillie Gifford also made the list with US strategies, all with returns above 14%.

“The combination of upwardly moving markets and dollar strength meant US equities had a stranglehold on the top ten – though it was split between North America and North American Smaller Companies,” Yearsley said.

“Morgan Stanley took the top two places with Artemis US Smaller Companies managed by Cormac Weldon hot on their heels. Even Baillie Gifford joined the party – frothy valuations anyone?”

See also: Global climate funds on brink of first year of outflows on record

Gold funds sunk to the bottom for returns in November, with the Charteris Gold & Precious Metals fund losing 12.9%, followed by Baker Steel Gold & Precious Metals. However, Yearsley noted this is despite gold falling less than $100 and staying 25% above last year’s price.

Across investment trusts, CATco Reinsurance Opportunities topped the list with confirmation of its windup, followed by Seraphim Space with a return of 28.6% and Baillie Gifford US Growth at 24.88%.

“There have been 14 mergers, and the number of trusts has fallen from 327 at the turn of the year to stand at 299 now,” Yearsley said.

“With fund raising tough to come by when many trusts sit on double digit discounts, that number will surely continue to shrink. Looking at performance last month and there wasn’t much difference between open and closed end products with North American Smaller Companies topping the charts with a gain of almost 19%.”

The £630m trust’s share price has more than halved since its peak in 2021, falling 58.7% – almost quadruple that of the 15.9% loss made by its peers in the IA Global Smaller Companies sector.

After a review into this negative performance, chair Jonathan Simpson-Dent said Edinburgh Worldwide needs a plan to “put the trust back on a path for growth”.

Two new managers – Luke Ward and Svetlana Viteva – will be appointed to the trust to implement the action plan alongside existing manager Douglas Brodie.

Part of the strategy changes will involve lifting the size threshold of companies it can invest in. It pledged to limit the size of stocks it buys at $5bn in 2014, yet the market capitalisation of smaller companies has risen sizably over the past decade, it said.

The threshold has risen by over $24.5bn, with the trust now able to buy companies as large as $29.5bn.

Edinburgh Worldwide will also be scaled down from its current 75 to 125 holdings, to between 60 to 100 positions. The larger portfolio was initially intended to reduce risk, but the review concluded that ‘a more focused portfolio could benefit shareholders, allowing for closer scrutiny by the managers whilst still providing diversity’.

Yet James Carthew, head of investment companies at QuotedData, said these investment policy changes were not very drastic. He attributed much of the trust’s underperformance to the fact its asset class has been out of favour in a high interest rate environment.

“There is a big difference between what constitutes ‘small cap’ in the US and everywhere else, but permissible market cap size is not what has caused this trust to lag the returns of peers such as Herald. Nor does the change in the number of stocks in the portfolio seem all that radical,” Carthew said.

“However, Edinburgh Worldwide is managed with a particular style and, for the trust to perform, that style needs to return to favour, which I believe will happen in time.”

The trust’s board has also committed to returning up to £130m to shareholders following a share buyback programme that reduced its discount to 2.7%.

The trust’s total return is down almost 40% over three years, according to FE FundInfo data.

In a stock exchange announcement, the Baillie Gifford trust’s board said it believes action to address the size of the trust, the low liquidity in its shares and its discount would be in the best interests of shareholders.

See also: AIC tables proposal for partnership with National Wealth Fund

The board will consult with shareholders on options for the trust, including a rollover into the £1.8bn Baillie Gifford Positive Change fund.

It added that any proposal would include a cash exit option. The trust would also need to take into account the illiquidity of its five private investments, which comprise 4.3% of the portfolio at the end of August.

While the open-ended Positive Change fund has also been hit by a tough period for performance over three years, down 28.7%, it is a top quartile performer in the IA Global sector over five years.

The two funds seek to generate long-term returns while contributing towards a more sustainable and inclusive world.

Keystone currently trades at a 7.4% discount to its net asset value, according to the Association of Investment Companies.

Ten strategies received an ‘Elite’ rating, while two funds received the ‘Elite Radar’ badge.

M&G’s Global Emerging Markets and Japan Smaller Companies strategies were among the newly-rated Elite funds.

M&G Japan Smaller Companies, led by Carl Vine, aims to emphasise company engagement to uncover unique investment opportunities.

Darius McDermott, managing director at FundCalibre, said: “Even in recent challenging market conditions, this fund has delivered steady performance, making it an interesting option for investors seeking exposure to Japanese smaller companies.”

See also: Candriam adds market-neutral ESG strategy to fund suite 

The £2.5bn Artemis UK Select strategy, managed by Ed Leggett and Ambrose Faulks, was also commended by FundCalibre.

McDermott said the fund is a “strong and differentiated option” for investors seeking high returns that are comfortable with greater market volatility.

For growth-oriented investors, FundCalibre highlighted Baillie Gifford Pacific.

“It’s an appealing choice for growth-oriented investors who can handle short-term swings and want exposure to this dynamic market. Unlike some other Baillie Gifford funds, it shows pragmatism by rotating into cyclical sectors when needed,” McDermott added.

In the global equities sector, GQG Partners Global Equity and T. Rowe Price Global Select Equity both received an Elite rating.

Meanwhile, Fidelity’s £818m UK Smaller Companies fund was viewed by FundCalibre as an “attractive option” for value investors seeking to uncover underappreciated opportunities.

The strategy has been run by Jonathan Winton since 2014 and typically holds 80-100 positions, with up to 20% made up of non-UK and non-small cap ideas.

See also: BlackRock: Banks ‘quietly outperform’ amid market volatility

The BlueBay Global Investment Grade Corporate Bond fund was the only fixed income offering to be newly-rated in this set of awards, receiving the Elite tag.

“BlueBay’s expertise in fixed income, supported by a well-resourced team of macro, credit, and ESG analysts, ensures a disciplined approach to portfolio management. With a steady track record of performance, we view this as a solid core option for portfolios with bond allocations,” McDermott noted.

One of the firm’s sovereign bond offerings, the  BlueBay Investment Grade Global Government Bond fund, received an Elite Radar badge.

WS Canlife Diversified Monthly Income was the only multi-asset fund to be awarded an Elite rating.

Chris Salih, head of investment trust and multi-asset fund research at FundCalibre said: “With a robust risk management process and a focus on stable returns, this fund has delivered solid performance since its launch, making it a reliable choice for income-focused investors.”

Invesco Emerging Markets ex China was also awarded an Elite Radar rating, while GQG Partners US Equity and Invesco Tactical Bond both moved from Radar to Rated.

Together, the underperforming funds hold £53.4bn assets, though this marks a 9% fall by number and 44% fall by value on the £95.3bn named in the previous edition in March.

The bi-annual report highlights equity funds that have consistently underperformed their benchmark over three consecutive 12-month periods. To be eligible for the Bestinvest ‘dog house’, strategies must also have underperformed by 5% or more over the three-year period analysed.

Global equities housed the most underperforming strategies by sector with 44 responsible for £26.2bn of the assets named. However, this was a slight improvement on the 51 strategies at the start of the year.

Meanwhile, ESG funds made up a fifth of the overall tally, which in part reflects the unexpected surge in oil and gas prices on the back of post-pandemic supply chain pressures in 2021 and Russia’s invasion of Ukraine. Over the period, the MSCI World Energy Index returned 98%, compared to the MSCI World Index’s 28%.

The MSCI Global Alternative Energy Index fell 38%, highlighting sustainable funds struggles over the period.

See also: Is it finally time for UK commercial property to shine?

Jason Hollands, managing director of Bestinvest, said: “In 2023 and 2024, it has been the blistering performance of names such as microchip maker NVIDIA, Alphabet, Amazon, Meta Platforms and Microsoft that dominated the investment news. Along with Tesla which has had a tougher time in 2024, this narrow band of stocks have earned the moniker the ‘Magnificent Seven’.  

“The Bloomberg Magnificent Seven Index, comprised of an equal weighting in these seven US mega caps has surged 42% over the past year, as the frenzy over AI accelerated.

“When you consider the Mag 7 now represents a third of the US S&P 500 Index by market capitalisation and 22% of the MSCI World Index, it helps to explain why global fund managers not fully weighted to this extremely concentrated band of influential stocks struggled to consistently beat the markets.”

Ten ‘great danes’

Ten funds with over £1bn assets, including three Fidelity funds and two SJP strategies, made the list. The largest, the £10.7bn SJP Global Quality fund, underperformed its benchmark by 27% over the three years.

However, Justin Onuekwusi, chief investment officer at St. James’s Place, questioned the methodology of the report.

“The performance of our funds is inclusive of our single ongoing charge, which covers the costs for the external fund manager, administration, and advice,” he said.

“Most of the funds that we are compared with in this analysis do not include advice and administration charges therefore unfortunately it is not a like-for-like comparison. The ‘unbundling’ of our charges in 2025 will simplify comparisons with our peers.

“In our view, investors should remember that past performance is not an indicator of future results, and should approach short-term rankings and recommendations with a healthy dose of scepticism. Our research clearly shows that selling poorly performing funds in the short term to buy that year’s top performers often negatively impacts investor returns over the medium to long term.

“While comparisons can be useful, consider the 2021 Spot the Dog report as an example. The worst-performing funds in that report outperformed the top-rated ones over the next three years in six out of nine categories, with returns averaging over 16% higher. Performance rankings like these can lead to detrimental investor behaviour.”

A Fidelity International spokesperson added that the firm takes extended periods of underperformance seriously and constantly monitors, reviews and takes action to ensure they meet the needs of clients.

In March, management of the £3bn Fidelity Global Special Situations fund was taken over by Christine Baalham and Tom Record. Since joining, Fidelity said the managers have been in the process of transitioning the portfolio.

Largest funds on the list

The Artemis Positive Future fund was named as the worst performer overall over three years, trailing its benchmark by 71% over the period. In March, the firm announced that the quartet of portfolio managers running the strategy had exited the firm, with head of impact equities Sacha El Khoury taking lead of the fund.

The strategy was followed by Baillie Gifford’s £490m global discovery fund, which lagged its peers by 65% over the three years.

Notably, while Terry Smith’s Fundsmith Equity and Nick Train’s Lindsell Train UK Equity funds made the list for the first time in March, the duo were not included in this edition.

See also: Is a bitcoin allocation a diversification ‘cheat code’?

Biggest underperformers overall

Bestinvest’s Hollands added that the report is a reminder to investors to check their portfolio at regular intervals to assess the performance of their assets.

“It is important to stress that Spot the Dog should not be treated as a simple list of funds to ‘sell’, it does highlight the importance of monitoring a portfolio of investments and asking yourself whether you remain comfortable with your holdings or whether it is time to make some changes.”

“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,” he added.

“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.”