Which investment funds have put in the most reliable performances to make our line-up of the kings of consistency?
Our Consistent 30 line-up of funds across 15 leading sectors that produce not just strong but consistently reliable returns throughout a three-year period has been running for three years now. And 14 funds have retained their crowns this year, one more than last year. A further 10 funds, though dethroned by stronger contenders, retain their places in the top 10 per cent of their respective sectors, up from just five in 2017.
‘It has been easier to be consistent this year because markets have been consistent,’ says Darius McDermott, managing director of FundCalibre, the fund ratings provider. ‘Investment styles that were popular previously are still in vogue, volatility has been low and markets have continued to climb.’
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However, there have been some significant changes. Notably, Merian Global Investors (formerly Old Mutual Global Investors) has lost its shine, with the three funds that featured last year all losing their crowns.
‘Merian has a number of stock ideas that are consistent across its UK fund range, and these have encountered a couple of company-specific problems this year that have hurt performance,’ says McDermott. He nevertheless rates the fund manager as a ‘very good UK equities franchise’.
However, for Nexus Independent Financial Advisers, the jury is out. Managing director Kerry Nelson says: ‘A significant amount of corporate activity plus changes of strategy and personnel add up to too much turbulence for us.’
While strong past performance is no guarantee to future success, an analysis of consistency can help investors select funds that will afford them a smoother ride. But it is important to recognise the reasons for the consistency. Is it down to the manager’s stockpicking prowess or to their investment style being in favour?
‘There are two types of consistency to consider: consistency of performance and consistency of investment style,’ says Ben Yearsley, a director at Shore Financial Planning. ‘Looking at just one of these can give you a skewed view of the investment world. Knowing why a fund has performed a certain way is almost as important as the consistency of its long-term performance.’
The Consistent 30 features the two most consistently top-performing funds in each of 15 leading Investment Association sectors. In our three UK equity sectors, two of the six winners from the previous year have retained their crowns. Of the remaining four funds, two maintain a 10 per cent place, while the remaining two have dropped out of the top decile due to weaker performance than their peers over the past year.
In the UK all companies sector, it is all change, with two funds run by Merian losing their crowns. Merian UK Dynamic Equity retains a top 10 per cent position over three years, but it sits among the top 50 per cent of funds over the past year, while Merian Equity has fallen way down the rankings over both periods.
MFM Bowland and MI Chelverton UK Equity Growth, the top two performers in this sector over three years, replace them in our line-up. They have each returned more than 82 per cent over the period, while boasting low consistency scores of 1.63 and 2.73 respectively.
The lower the consistency score the better. A score of around two means a fund may have dropped out of the top two deciles briefly during the past three years but has been in the first or second decile most of the time.
McDermott believes the Chelverton fund is ‘one of the most exciting UK funds to launch in recent years’. ‘This is a truly active fund that completely ignores any benchmark index,’ he says of the fund, which is run by James Baker and Edward Booth and has been going since October 2014. ‘It has a comprehensive and disciplined screening process that targets cash-generative companies capable of funding their growth.’
In the UK equity income sector, Schroder Income has dethroned MI Chelverton UK Equity Income, which has dropped out of the top 10 per cent of funds. The incoming fund adopts a ‘deep value’ style, with managers Kevin Murphy and Nick Kirrage investing in companies they think are undervalued and waiting for a correction. It is the second-best performer in this sector and boasts the lowest consistency score of 2.9. Nelson of Nexus likes ‘tried and tested’ income funds and believes the Schroders fund fits the bill. ‘These guys have the experience and offer a safe pair of hands,’ she says.
Man GLG UK Income retains its second spot among UK equity income funds, being the fourth-best fund in terms of three-year performance and having a consistency score of 3.53, despite the value stocks that it targets being out of favour.
‘The income sector tends to be more value biased, but it’s still quite surprising that these funds have been so consistent given that we’ve had a long period of growth outperforming value,’ says Yearsley. ‘They could deliver even better performance for investors if value stocks return to favour, as many commentators are predicting.’
TB Amati UK Smaller Companies, a feature of our Consistent 30 since 2016, retains one of the top spots in the UK smaller companies sector. Last year’s top fund, Merian UK Smaller Companies Focus, has been ousted in favour of Jupiter UK Smaller Companies. The Merian fund is the top performer in this sector over three years, but it has middling performance over one year and a markedly worse consistency score than its successor: 2.93 versus 1.8.
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Five out of 12 funds in global and overseas equity sectors retain their crowns. A further four keep their places in the top 10 per cent of their sectors, but have been overthrown by stronger contenders.
Among global funds, Morgan Stanley Global Opportunity, a newcomer in 2017, reigns supreme. It has delivered the highest return, of almost 120 per cent, in its sector over three years, while keeping its consistency score among the lowest, at 2.43.
In second place, Standard Life Investments Global Smaller Companies has taken the mantle from Fundsmith Equity, a Consistent 30 fund in 2016 and 2017. The Fundsmith fund remains in the top 10 per cent of funds in the sector over one and three years, but the Standard Life fund boasts a slightly superior performance and better consistency score (2.4 versus 3.17). Yearsley regards it as ‘an excellent fund that has been running its winners’.
Among global emerging markets funds, Hermes Global Emerging Markets has lost its place to FP Henderson Rowe FTSE RAFI Emerging Markets, a passive fund that tracks an index of the 350 largest emerging market companies. UBS Global Emerging Markets Equity retains its second place.
Among regional and single-country funds, Baillie Gifford has climbed the rankings, with two funds coming in and another moving from second to first place. ‘Baillie Gifford’s long-term growth style of investment has been in vogue for most of the past five or six years,’ says Yearsley. ‘Its managers tend to have a particular preference for tech-focused names, which have seen a bit of a pullback recently, so it will be interesting to see whether they retain this level of consistency.’
Former US equity fund ruler VT De Lisle America loses its place, having fallen out of the top 10 per cent of funds. It has less than 4 per cent in the technology sector that has led the US market higher. Baillie Gifford American, which has almost 30 per cent, in tech stocks, has moved up from second to first place. It is the runaway best performer over three years, having delivered returns of more than 150 per cent, and it boasts one of the lowest consistency scores, at 2.83. It is joined by JPMorgan US Smaller Companies, which has returned almost 130 per cent over three years and has a consistency rating of 2.6.
Among European funds, Baillie Gifford European takes the crown from Marlborough European Multi-Cap, which remains in the top 10 per cent but has struggled over the past year. Last year’s second-placed fund, Man GLG Continental European Growth, has also been ousted, this time by Hermes Europe ex UK Equity, thanks to its superior performance and far better consistency score.
In the Japan sector, newcomer Baillie Gifford Japanese has beaten Lindsell Train Japanese Equity – an incumbent since 2016 – to the top spot, given its significantly better consistency score – 2.47 versus 3.57. Meanwhile, Fidelity Japan Smaller Companies has fallen out of the first decile and out of our Consistent 30.
Last year’s Asia Pacific ex Japan victor, Baring Eastern Trust, has been deposed. Having lost investors money over the past year, its consistency score has shot up to 5.5. JPMorgan Asia Growth claims top spot with a consistency score of 3.2, the lowest in the sector. Hermes Asia ex Japan Equity retains second place.
Multi-manager Architas has held the Hermes fund in its multi-asset active range since 2014 and in its blended range since the start of 2017.
Architas investment manager Alex Burn says: ‘We want to outsource the country selection [within Asia] to the underlying manager. We select managers we have high conviction in. We have been long-term advocates of the Hermes Asia ex Japan Equity fund. Manager Jonathan Pines employs an accountancy-focused value approach we believe is appropriate for delivering more stable returns from emerging Asia.
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There were mixed fortunes for last year’s bond kings. Three out of six funds across three bond sectors – global, sterling corporate and sterling strategic bonds – retained a top-two position: the GAM Star Credit Opportunities, Pimco GIS UK Long Term Corporate Bond and Sanlam Strategic Bond funds. The first two have ranked among our Consistent 30 for three years running.
The three outgoing funds remain strong contenders, retaining a place in the top 10 per cent of their respective sectors despite losing out to stronger rivals in the contest for consistency.
In the global bonds sector, Schroder ISF Global High Yield loses its place, the GAM fund moves to second spot, having underperformed over the past year, and Nomura Global High Yield Bond comes in because of its strong near-term performance and solid consistency score of 3.67.
Last year’s sterling strategic bond sector king, Schroder Long Dated Corporate Bond, loses its position due to its relatively poor consistency score. Given its focus on longer-dated bonds, it is more at risk from interest rate rises too, so it may not be a good bet at this stage of the economic cycle. Schroder Sterling Corporate Bond takes its place, with the Pimco fund heir to its throne.
In the sterling strategic bond sector, the reigning fund has been ousted by a more worthy contender. Royal London Sterling Extra Yield Bond takes the place of GAM Star Credit Opportunities, thanks to its better consistency rating (1.9), higher returns and lower charges. The Sanlam fund remains second.
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Four out of six funds across our three mixed-asset sectors have retained their positions, highlighting the flexibility available to successful managers in these sectors to seek out the best returns.
Royal London Sustainable World Trust and Baillie Gifford Managed retain the top two spots in the mixed-investment 40-85 per cent shares sector with impressive consistency scores of 2.03 and 1.57 respectively.
AXA Global Distribution moves up from second place in the mixed-investment 20-60 per cent shares sector, displacing Artemis Monthly Distribution to take the top spot. Royal London Sustainable Diversified Trust takes second place, thanks to its strong performance and low consistency score (2.43).
Interestingly, another fund that focuses on sustainable investing is the most consistent fund in the flexible investment sector. Liontrust Sustainable Future Absolute Growth takes the top spot from Premier Multi-Asset Global Growth, which has dropped out of the top 10 per cent of funds. Unicorn Mastertrust retains second place in this sector.
Simon Bullock, a partner and chartered financial planner at central London wealth planner Mulberry Bow, points to the potential of sustainable investing to drive consistently strong performance.
He says: ‘Many of the methods, disciplines and principles [of sustainable investing] are not simply about sustainability; they are also good in an investing or business sense.’ He adds. ‘Indeed, evidence is emerging that there is a correlation between these disciplines and long-term performance.’
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Consistent 30: methodology
To make the grade, a fund’s performance must have been in the top 10 per cent of the sector in question over three years.
Crucially, a fund must also have one of the best three-year consistency scores, as measured by the fund’s average decile ranking during 30 rolling six-month periods over the same time frame.
Small funds with less than £25 million in assets were ‑ filtered out, as were funds that have not had the same fund manager at the helm throughout the three years.
We have taken charges into account, occasionally penalising funds charging a premium price when it was a close call between several candidate funds.
The 15 sectors analysed included the leading equity, bond and multi-asset sectors. We have excluded smaller sectors such as global equity income, and also the targeted absolute return and specialist sectors, where fund focuses and asset classes are particularly diverse.
This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.
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