Welcome to Asset Allocator, FT Specialist's newsletter for wealth managers, fund selectors and DFMs.
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Cream of the crop
Producing consistent, sustainable returns will always be top of the wish list for investment managers. But achieving that goal is easier said than done, particularly at times of market rotation. For asset allocators, the key is to balance a variety of approaches. Those running individual mandates, however, are to a degree dependent on the whims of market sentiment.
To that end: BMO’s latest FundWatch survey has found that just 20 of 1,085 funds were able to post top-quartile returns over a rolling three-year period to the end of the last quarter.
On top of that, just 103 of those funds were able to deliver returns above the median in each of the last three 12-month periods.
These qualities are relatively rare at the best of times – even in the three years to September 30 last year, only 191 funds beat the median requirement. Still, the renewed interest in cyclical shares has clearly had an impact where equity fund consistency is concerned.
There is one bright spot, however: a select group of US equity funds continue to stand out for their reliability, the past quarter included. Of the 20 funds that have maintained their consistency into this year, a quarter are US equity strategies. Another four are global equity funds - typically fairly reliant themselves on the US stock market.
For all the talk of the nascent shift away from tech, then, it’s the US active funds that are finding it easiest to steer through the noise.
Does the same ring true for discretionaries’ own US fund picks? Not quite: many of the most popular funds are racier strategies that have cooled off this year. But there are also some examples that do more or less fit the bill, like Artemis US Select. For those that do go down the active route, US fund selection is still unearthing some winners.
The smart money
The shift in the way that momentum indices are constructed, a move we first discussed several weeks ago, is drawing nearer. Those who do take exposure to the momentum factor are now being warned that upcoming rebalancings could see them deprived of access to shares like Amazon.
This won’t be a particular concern for professional fund selectors in the UK, for whom ‘momentum’ isn’t a watchword. Lest there were any doubt, our database indicates no such strategies feature among the 1,400 funds used by DFMs in model portfolios over the past five years.
Nor, as we’ve noted in the past, do smart beta ETFs in general feature particularly prominently in that database.
As touched upon yesterday, a few DFMs are now seeking more finely calibrated equity exposures; over the past quarter that’s seen the likes of clean energy ETFs added to portfolios, last year thematic strategies of all stripes were in vogue.
But smart-beta positions remain relatively rare overall. Even in the US, where take-up is further ahead than in Europe, there are signs of a cooling of interest. ETF Hub reports that the number of new product launches in the US last year stood at its lowest level since 2009. Globally, the total number of smart beta products fell 2.9 per cent in 2020.
This may simply be a sign of oversaturation: there are enough strategies already in existence to cater to investors’ every need. But given the fact that most funds’ window of opportunity for gathering assets tends to narrow after the first few years of their existence, it's unlikely the array of zombie ETFs will be resurrected by fresh investor interest in the months and years ahead.
Coming up short
The price of copper moved past the $10,000 mark for the first time in 10 years today, and the implications of a boom in commodities of various stripes is already making itself felt around the world.
Fresh concerns over potential copper supply shortages emerged earlier this week, and that’s in keeping with trends seen in other areas – the surge in lumber prices, for example, is having an impact on UK builders.
It’s not just raw materials: supply issues have been felt most keenly in the semiconductor space, affecting everything from electronics to car manufacturing, at home and abroad. As economic reopenings gather pace, there are more than a few signs of inflationary pressures starting to rise in tandem.