Market uncertainty since the onset of covid-19 led the number of funds generating consistent top quartile returns to fall in the third quarter of 2021, research by BMO Global Asset Management has revealed.
According to BMO GAM’s latest FundWatch survey, just 11 out of the 1,068 funds analysed (1.03%) in the 12 main Investment Association (IA) sectors achieved consistent top quartile returns in each of the last three 12-month periods, as at the end of Q3 2021.
This represents a decline on the previous quarter, in which 20 funds (1.9%) achieving ongoing top quartile returns, which itself was a ratio well below the historic range of about 2-4%.
Of the 12 major market IA sectors, IA Europe ex UK secured the highest proportion of funds with top quartile returns, with just three funds (3.5%), followed by IA Japan and IA UK Smaller Companies which both had 2.2% of funds making the grade (but only one fund per sector).
Meanwhile half of the 12 main IA sectors failed to score a single fund with top quartile performance over the rolling three years, the most high profile being IA North American, UK Equity Income, Global Emerging Markets and Asia ex Japan.
Jostling for position
“It has been 18 months since the start of the covid pandemic, marking half of the three-year period analysed in our FundWatch survey,” said Kelly Prior, an investment manager in BMO GAM’s multi-manager team.
“This period of volatility has had a negative impact on the consistent delivery of top quartile fund performance across the fund universe and this has further bolstered investor demand for passively managed products,” she added.
“As we start to see a shift in monetary policy, we expect this trend to reverse over time with a jostling for position going on within different areas of investment.”
Looking at the overall underlying data, Prior added that one thing which stands out is the lack of negative returns for pretty much all the funds in the IA universe over the entire three-year period to the end of Q3 2021.
Indeed of the 52 IA sectors (recently increased from 46), 42 generated positive returns in Q3.
The newly created IA India/Indian Subcontinent sector, which houses 16 funds, was the top performer during the quarter, gaining 14.8%. In last position, with a fall of 12%, was the also newly created IA Latin American sector.
