The consistency of top-quartile performance over rolling three-year periods fell again during the second quarter, according to findings from BMO Global Asset Management, as just 14 funds from 12 major sectors outperformed over three consecutive years.
The quarterly BMO Global Asset Management (BMO GAM) Multi-Manager Survey found that just 1.2 per cent of funds delivered consistent top quartile returns over three successive 12 month periods, down from 1.6 per cent in the first quarter.
BMO GAM’s multi-manager team reviews funds in the Investment Association’s 12 major market sector, filtering out those that are consistently top quartile in each of the last three 12-month periods.
The F&C Multi-Manager Solutions consistency ratio fell to 1.2 per cent, below the 2 to 5 per cent historic range, for the 12 months to end of Q2.
Source: BMO GAM
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 130 of 1,132, with the “less demanding” ratio rising to 11.5 per cent from 10.9 per cent at the end of Q1.
Kelly Prior, investment manager for F&C Multi-Manager Solutions, said consistency may have been impacted by the Brexit vote.
She said: “Our research shows that consistency remains an elusive feat with the figures continuing to be low.
“It is worth noting that every IA sector is made up of a myriad of approaches, with very few managers claiming that they can outperform in all market conditions.”
Prior added: “As markets move through natural economic cycles different types of assets, stocks, sectors and styles will perform differently.
IA Sterling Corporate Bond, IA UK Smaller Companies and IA Global Equities were among the top-performing sectors achieving consistent top quartile returns. Six of the main IA sectors failed to have any consistently top quartile performers over the time periods.
Below FE Trustnet looks at the sectors highlighted by BMO and takes a closer look at several funds with top-quartile performances in rolling-one 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 Sterling Corporate Bond
The IA Sterling Corporate Bond sector was the most consistent for top quartile returns, with 7.5 per cent of funds. Under the median consistency hurdle this increased to 17.5 per cent of funds.
Over the most recent three-year period to the end of Q2 2017, the best performing non-institutional fund is the Pimco GIS UK Corporate Bond, which has risen by 22.83 per cent, compared with a 17.76 per cent return for the average sector fund.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
The £435.4m fund is managed by Ketish Pothalingam and invests at least two-thirds of its assets in sterling-denominated, primarily investment grade corporate and credit instruments, although it may invest up to 15 per cent of its assets in below-investment grade bond issues. The fund has an ongoing charges figure (OCF) of 0.75 per cent.
The most consistent funds in the sector are Schroder UK Corporate Bond and UBS Corporate Bond UK Plus, which have been top quartile for five consecutive periods.
Other consistently top quartile funds include L&G Managed Monthly Income Trust and Liontrust Sustainable Future Corporate Bond.
IA UK Smaller Companies
The next most consistent sector was IA UK Smaller Companies where 2.2 per cent of funds delivered top quartile returns over rolling one-year periods.
Under the median consistency hurdle this figure increased to 19.6 per cent of funds, the most consistent sector using this measure.
The best fund over three years is the MFM Techinvest Special Situations fund, which has returned 72.43 per cent compared with 40.58 per cent for the average sector fund.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
The £12.9m five crown-rated fund is managed by Conor McCarthy and Darren Freemantle and aims to provide “long-term capital growth and the accumulation of income through an actively managed portfolio of equities whose future prospects do not appear to be fully reflected in the current stockmarket price”.
While the fund’s focus is on domestic smaller companies, it may invest outside the UK. The fund has an OCF of 1.77 per cent.
The most consistent fund is Marlborough UK Micro Cap Growth, which has delivered top quartile performance for six consecutive periods. Other consistent funds include Jupiter UK Smaller Companies and TM Cavendish AIM.
IA Global
Lastly, the IA Global sector was most consistent with 1.6 per cent of funds, or three funds, securing top quartile returns over the past three one-year periods.
The Fundsmith Equity fund is the retail offering returning 99.2 per cent gain for the three years to 30 June 2017. The average sector fund rose by 43.06 per cent over the same period.
Performance of fund vs sector & benchmark over 3yrs
Source: FE Analytics
The £11.8bn five crown-rated fund is managed by FE Alpha Manager and industry veteran Terry Smith; it invests globally on a long-term basis and has a concentrated portfolio of between 20-30 stocks. The fund has an OCF of 1.05 per cent.
The popular fund is on the FE Approved List and is supported by FE AFI panel of advisers.
“We believe investors must be aware of Terry Smith’s specific investment philosophy before investing the fund as this is not a typical global equity fund,” noted FE analysts. “The fund could behave very differently from the rest of the market.”
The most consistent IA Global fund was Orbis Global Equity, which has delivered top quartile performance for six consecutive rolling one year periods, according to FE Analytics.
Other consistent funds include Dodge & Cox Global Stock, GS Global Small Cap Core Equity Portfolio, Invesco Perpetual Global Opportunities, Investec Global Special Situations, M&G Global Dividend, M&G Global Leaders, Natixis Harris Associates Global Concentrated Equity, NFU Mutual Global Growth, and SKAGEN KonTiki.