The amount of funds in the Investment Association (IA) universe to make consistent top-quartile returns over three years has jumped from to 27 from just four at this time in 2022, according to fund managers at Columbia Threadneedle.
By the end of the second quarter, 2.1% of the 1,286 qualifying funds had achieved a top return in each of the previous three 12 month periods. This was up from 1.8% at the end of the first quarter and significantly higher than the 0.4% a year ago.
The IA UK Smaller Companies sector was where investors had the best chance of finding a consistent performer, with 9.3% of offerings achieving this feat. The next best was the IA Japan sector with 7.4% of funds.
Conversely, the IA UK All Companies, IA Strategic Bond and IA Global Mixed Bond sectors failed to have any funds on the list, while the IA North American sector only had one fund achieving consistently top-quartile returns in the three consecutive 12 month periods.
Lowering the standard to an above-median return in each of the three-year periods, 165 of the 1,286 qualifying funds made the grade, up from 136 at the end of the previous quarter.
Although consistency in three-year fund performance improved, only 20 out of the 57 IA sectors made positive ground in the second quarter as the backdrop of stubborn inflation and higher interest rates caused all three UK sectors to register losses between April and June.
In the second quarter, economic growth rebounded despite stubbornly high inflation and rising interest rates, with US equities and technology stocks in particular propelled by the rise of artificial intelligence (AI).
Kelly Prior, investment manager in the multi-manager team at Columbia Threadneedle Investments, said: “While economic growth trumped stubborn inflation and higher interest rates in the second quarter of the year, we are at multi decades of high interest rates in most major and minor economies of the world.
“It is generally accepted that it takes around 18 months for the impact of interest rates to have an effect on the real economy. As the first hike in the UK was in December 2021 and in March 2022 for the Federal Reserve in the US, investors should be thinking about when this will have an impact, and where.”
“Against the backdrop today, cash has become a viable asset class, however this is not the automatic phenomenon that many assume, particularly as financial institutions are holding back in passing on rate increases. As is so often the case in investing, being active can make all the difference to the outcome you achieve.”