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Proportion of funds delivering top quartile returns falls below historic average

16 October 2019

The number of funds generating consistent top quartile returns over three years has fallen below the historic average, according to the Q3 2019 BMO Global Asset Management Multi-Manager Fund Watch data.   

The quarterly survey revealed that the number of funds to achieve top quartile returns over a three-year period fell to 1.7 % (18 of the 1,088 funds), down from 2.3% per cent in the previous quarter.

The IA Japan sector secured the highest proportion of funds with top quartile performance over three years, with 4.7% funds achieving this feat.  Two sectors, IA Asia ex Japan and IA Global Bonds sectors, failed to have any consistently top quartile funds over the period.

Lowering the hurdle rate, 138 of the 1,088 funds delivered above median returns in each of the last three 12-month periods. The IA North American sector performed particularly strongly, with 22.7% of funds performing above median for three consecutive years.

UK gilts lead IA sector performance, while small caps take a hit

The BMO survey showed that the third quarter of 2019 saw a positive run for most IA sectors. The IA UK Index Linked Gilt sector was the best performer, gaining 8%. This was followed by the IA UK Gilt sector, rising by 6.3%. The IA European Smaller Companies sector was the laggard falling by 2.3%, with the IA UK Smaller Companies sector the next worst.

Kelly Prior, Investment Manager in BMO Global Asset Management’s Multi-Manager team (pictured), comments: “Consistency of fund performance remains at a low despite the ever-expanding number of passive vehicles within the IA per groups. In recent quarters quality growth and passive funds have dominated the consistency tables. In the third quarter of 2019 this trend abated somewhat with the tide reversing at the margin as investors changed their preference towards value.

“As we work through the sunset of this extended economic cycle, increased volatility seems inevitable. While this may not yield an increase in consistency in the short term, a return to fundamental investing should see a pick up at some point.”

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