The consistency of funds’ top-quartile performance over rolling three-year periods has fallen to historic lows among major market sectors, according to findings from BMO Global Asset Management, although there have been some stand-out funds.
Looking at 12 major market sectors, BMO found that the number of funds boasting top-quartile returns over successive rolling three-year periods dropped significantly in the most recent update.
The F&C Multi-Manager consistency ratio fell to 1.6 per cent, below the 2 to 5 per cent historic range, as just nine funds from 1,140 in the 12 main IA sectors achieved top-quartile returns over three years.
Adding a hurdle rate to include funds with above-median returns in each of the last three 12 month periods increased the number of consistent funds to 124 of 1,138, although the “less demanding” ratio” also dropped to 10.9 per cent in Q1.
Kelly Prior, investment manager for F&C Multi-Manager Solutions, said political events around the globe had an impact on performance during the first quarter of the year.
She explained: “In the first quarter of 2017, our survey revealed an unusually low number of funds achieving consistent top-quartile returns.
“This is not surprising given how much markets were impacted by geopolitical factors and central banks policies.
“Politics exerted significant influence on the direction of currencies of the affected economies. Despite the Federal Reserve raising interest rates, the dollar fell back as confidence in the ability of president Trump to push through market friendly policies fell.
“However, the yen was the beneficiary of this, making solid ground over sterling as a perceived ‘safe haven’ currency.”
Of the top-performing sectors achieving consistent top quarile returns were the IA Global Equities, IA Global Emerging Markets, IA Sterling Strategic Bond, IA Sterling Corporate Bond and IA UK All Companies sectors.
Below FE Trustnet looks at the sectors highlighted by BMO and takes a closer look at several funds with top-quartile performances in rolling-three year periods for the past three years. Of course, it must be kept in mind that past performance is no guide to future returns.
IA Global Emerging Markets
A strong return for emerging markets last year has helped funds in this sector, with some solid rolling three-year performances to the end of March 2017.
The best performer over the most recent three-year period was Templeton Emerging Markets Smaller Companies with a return of 66.67 per cent, well above the 37.98 per cent return for the average sector fund.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
The $651.7m, five FE Crown-rated fund aims to achieve long-term capital appreciation through investment in emerging market small-cap stocks. The fund has been managed by Chetan Sehgal since earlier this year, having taken over from veteran manager Mark Mobius and co-managers Dennis Lim and Tom Wu. It has an ongoing charge figure (OCF) of 1.66 per cent.
The Franklin Templeton fund is also one of the most consistent in the sector alongside Jupiter Global Emerging Markets and Invesco Perpetual Global Emerging Markets, producing top-quartile rolling three-year returns since 2014.
Other funds in the sector with top-quartile performances for the most recent three-year period include five crown-rated JPM Emerging Markets Small Cap – managed by FE Alpha Manager Amit Mehta and Austin Forey – and the $1.8bn four crown-rated Hermes Global Emerging Markets with returns of more than 60 per cent.
IA Sterling Strategic Bond
The £515.4m five crown-rated GAM Star Credit Opportunities fund, managed by FE Alpha Manager Anthony Smouha and Gregoire Mivelaz, was one of the top performing IA Sterling Strategic Bond funds over the three years to the end of the last quarter.
In the three years to 31 March, the fund returned 29.35 per cent compared with an average return of 13.37 per cent for the sector.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Aiming for income generation with capital appreciation, the fund has generated strong returns over the past three 12-month rolling three-year periods and was up by 56.71 per cent in the three years to 31 March 2015. It has an OCF of 1.15 per cent.
The sector is home to several funds with consistent long-term track records with three generating top-quartile performances over consecutive three-year rolling periods in recent years.
AXA Framlington Managed Income, Royal Bank of Scotland High Yield (managed by James Vokins of Aviva Investors) and Royal London Sterling Extra Yield Bond have all generated top-quartile returns over consecutive rolling three-year periods since 2012.
IA Sterling Corporate Bond
Several funds in the IA Sterling Corporate Bond sector have generated strong top-quartile performances in the three years to the end of Q1 2017.
One of the standout performers, however, was the Schroder Long Dated Corporate Bond, which returned 39.83 per cent over the period, compared with a return of 19.2 per cent for the average sector fund.
Performance of fund vs sector over 3yrs
Source: FE Analytics
The £318.5m five crown-rated fund aims to provide capital growth and income through long-dated non-government debt and has been managed by Alix Stewart since 2012. It has an OCF of 0.27 per cent.
The fund has generated top-quartile performance over five rolling three-year periods.
However, both the £247.6m four crown-rated Baillie Gifford Investment Grade Long Bond fund, managed by Gregory Turnbull-Schwartz, and Ketish Pothalingam’s £488.2m Pimco GIS UK Long Term Corporate Bond fund have longer consecutive top-quartile track records, being in the top 25 per cent of the peer group in each of the three-year periods going back to 2010.
IA UK All Companies
The largest sector in the IA universe understandably has thrown up a number of strong performances from some of the industry’s best known names.
Indeeed, the best performer of the most recent three-year period is the £2.6bn five crown-rated Old Mutual UK Mid Cap fund. The fund was up by 51.61 per cent in the three-year period to end-Q1, while the average UK All Companies sector fund managed a 21.75 per cent return.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
Managed by FE Alpha Manager Richard Watts, the fund aims to provide capital growth through investment in mid-sized UK companies. It has an OCF of 0.85 per cent.
Another notable fund over the past three years is £131.8m five crown-rated SDL UK Buffettology also managed by an FE Alpha Manager: Keith Ashworth-Lord. The fund, which aims to achieve an annual compounding rate of return over the long term, was up by 50.54 per cent.
The CF Lindsell Train UK Equity and MFM Slater Growth funds, managed by veteran investors and FE Alpha Managers Nick Train and Mark Slater respectively, stood out for long-term consistent performance. Both five crown-rated funds have delivered consecutive top-quartile rolling three-year returns since 2010.