Three sectors failed to deliver a single fund with top-quartile returns over three 12-month periods.
UK equity income funds were among those in three sectors that failed to produce a single fund achieving top-quartile performance over the last three 12-month periods.
BMO Global Asset Management’s quarterly FundWatch survey found the Investment Association’s (IA) Global Bond and Strategic Bond sectors also did not contain a single fund that delivered top-quartile returns (in the top 25% of performers) consistently over a three-year period – as at the end of the first quarter of 2021.
The survey, which analyses 1,085 funds with a three-year track record in 12 IA sectors, found just 1.8% consistently achieved top-quartile performance over the last three 12-month periods. This compares to 3.2% in the previous quarter and is below the historic average of between 2% and 4%.
As was the case at the end of 2020, the IA North American sector boasted the highest proportion of funds (6% of the sector) achieving top-quartile returns over the three time periods.
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When the hurdle is lowered to median returns, 103 of 1,085 funds (9.5%) consistently delivered returns above the sector average in each of the last 12-month periods. However, this is the lowest percentage figure in the last decade. In the fourth quarter of last year, 16.2% of funds had consistently outperformed on this measure.
Kelly Prior, investment manager in BMO Global Asset Management’s multi-manager people team, says the first quarter of 2021 may “offer a taste of what might be to come in terms of volatility between styles of investing leading returns”.
She adds: “We have been running the FundWatch survey for over a decade, and since the global financial crisis the direction of interest rates has been a downhill street, allowing certain styles of investing to freewheel to the front of the leader board in the performance charts, while others have had to pedal hard just to stand still.
“Against this backdrop, in recent years we have seen managers leaning into their preferred style of investing, such as value or growth as the market has become more bifurcated. This has led to less consistent performance of individual funds versus the average, which contributes to the extreme data points in our survey findings. As we look ahead, with the headline level of markets in valuation terms being far from cheap, we would hope the performance of active managers will improve.”
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UK equity funds that delivered in rising and falling markets
Separate analysis by interactive investor painted a more positive light of UK equity income funds over two different time periods.
We looked at how UK equity income funds performed during the Covid-19 sell-off (measuring performance for the first quarter of 2020) and how funds fared in the subsequent recovery, from 1 April 2020 to 30 April 2021.
Of the 87 funds in the sector, we found that out of the 22 funds in the top quartile of the sector in the first quarter of 2020, half kept their place in the top quartile from 1 April 2020 onwards as markets recovered over 13 months.
The 11 funds that were in the top quartile of the sector during both falling and rising market conditions were: VT Tyndall Real Income, Courtiers UK Equity Income, TB Saracen UK Income, Premier Miton UK Multi Cap Income, WS Charteris Premier Income, Merian UK Equity Income, FP Octopus UK Multi Cap Income, Allianz UK Equity Income, GAM UK Equity Income, Santander Equity Income and AXA Framlington Monthly Income.
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