US fund sector most consistent top performer at end of 2020

Analysis of fund sectors over the past three years found US funds were the most consistent. 

Growth and the technology giants helped power US equity funds to the top of the performance tables by the end of 2020, according to BMO Global Asset Management.

The group’s FundWatch survey found that the Investment Association (IA) North American sector boasted the highest proportion of funds with top-quartile returns over three years at the end of last year.

The finding may come as a surprise as the US market is considered a tough nut for fund managers to crack due to being highly researched, which makes it difficult to get an edge.

The analysis found that just over 9% of funds in the peer group achieved top quartile performance over a three-year period in the fourth quarter, and the sector was the most consistent for top and above-average returns for the whole of 2020. The next best-performing sectors were IA Global Equity and IA Japan, with just over 5% of funds in each peer group making the grade.

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The research also revealed a decrease in the number of funds achieving top-quartile returns consistently over a three-year period, as at the end of the fourth quarter of 2020, at 3.2% (35 of the 1,087 funds), compared to 4% in the third quarter of 2020. The IA £ Corporate Bond and IA Emerging Markets stood out for the wrong reasons as these sectors failed to deliver any consistent performers.

Best and worst IA sectors for 2020

Last year’s performance trends were similar to that seen in 2019, BMO says, with long-duration bond and growth equity funds dominating the top performers. Income funds tended to languish among the bottom sectors, while growth was the common theme among the best performers.

In the final quarter of 2020, all but two of the 39 IA sectors made positive ground, continuing the gradual improvement following the lows of March last year. The IA UK Smaller Companies sector topped a table of IA sector averages, gaining 21.6%, with the table laggard being the IA UK Direct Property sector after a torrid year for these funds.

UK assets in negative territory

UK assets have some ground to make up relative to the rest of the world, BMO found. Of the six IA sectors in negative territory for 2020, four of these were UK-asset focused.

Elsewhere, corporate bond funds did well, with all these sectors making positive gains, led by £ High Yield, up 6.4%.

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Fund winners and losers

At the individual fund level, BMO highlights David Cummings’ £162 million Aviva Investors UK Listed Equity High Alpha fund as a “stunning” performer, while Ninety One Global Gold suffered a rough quarter as gold lost its lustre as a safe-haven asset in the face of new Covid vaccines.

“It comes as no surprise that the number of funds achieving consistently top-quartile returns over three years remains elusive in such unusual times,” says Kelly Prior, investment manager in BMO Global Asset Management’s multi-manager people team. “What is interesting to observe is the composition of the types of funds in the top and bottom of the tables. The thunderous growth of large-cap tech, which has heavily influenced the US market and global indices in the earlier months of the year, has meant that the 12-month rolling above-average consistency figures are dominated by US and global funds.

“The fourth quarter saw a significant rotation into risk assets and change in the leadership in markets with recovery beneficiaries taking the baton and setting off at quite a sprint. There is much ground to make up, however, and this is not going to be a smooth path. In these unprecedented times, it is more important than ever to invest over the long term and to actively navigate the markets.”