This sector has the highest percentage of funds that beat their peers on a regular basis.
Investors spend a lot of time comparing the returns of their fund to the potential returns of other investment. The gap between the two is the so-called opportunity cost.
This often takes the form of comparing an active fund against a general index. This allows an investor to work out if it is worth paying a premium for the active manager.
However, it is also important to compare the performance of a fund to the wider sector it sits in.
But, care needs to be taken, as a report by BMO Global Asset Management shows the number of active funds that consistently outperform varies significantly from sector to sector.
According to BMO's FundWatch survey, the IA UK Smaller Companies fund sector has the highest percentage of funds that beat their peers on a regular basis.
The ratio, which measures the number of funds that consistently remain in the top-quartile of their sector over the past three years, stood at 10.42%.
In second place was IA £ Corporate Bond, with a consistency ratio of 8.9%. The IA Emerging Market sector came in third with a ratio of 5.2%.
Meanwhile, the consistency ratio for the whole IA fund universe came in at just 2.2%. This, as BMO points out, is low, as the historical range is between 2% and 5%.
This is not likely to provide comfort to investors, as it translates to a total of just 24 funds out of a universe of 1,102, meaning just 24 active funds have consistently beaten their peers in delivering top-quartile outperformance returns throughout the three-year period.
When the hurdle rate is lowered to above median, 122 of the 1,102 funds, or 11.1%, delivered above median returns consistently.
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