Only a tiny proportion of actively managed funds have delivered above average returns for each of the past three twelve month periods, according to research from BMO.
The research, conducted on behalf of BMO Asset Management, found only 9.6 per cent (109) of the 1,129 funds of the 12 major market sectors delivered above median returns in each of the last three years.
This compares to 11.5 per cent of funds for the three years to the end of the second quarter of 2017.
The sector that most consistently produced above average returns was the IA UK Smaller Companies sector with 21.7 per cent of funds achieving this feat.
At the other end of the scale, the IA UK Equity Income sector was the least consistent at 1.3 per cent.
Several of the better performing funds in the IA UK Equity Income sector in recent years, such as the £1.2bn Evenlode Income fund, have left the sector.
This is because, while their total return placed them in the top 25 per cent of funds in the sector over three years, it didn’t meet the requirement of the sector to have a yield of greater than 10 per cent of the FTSE 100 yield.
The exit of those funds from the sector will have dampened the total return performance of the sector.
The BMO survey shows a smaller pool of funds were able to generate top quartile returns in the three years to the third quarter of 2017, compared with same period to the second quarter. This is considerably lower than the historic range of between two and five per cent.
Of the 1,129 funds only nine (0.8 per cent) were able to consistently deliver top quartile returns over three years as at the end of the third quarter of 2017.
Seven of the 12 sectors failed to secure any top quartile funds, while the most accomplished sector, the IA Global Bond, managed the top quartile for 2.5 per cent of its funds.
Kelly Prior, investment manager in BMO Global Asset Management’s Multi-Manager team, commented: “Building on the previous quarter, the number of funds generating consistent returns continues to deteriorate.
"Over nine in 10 funds failed to consistently generate above average returns over a three year period, with vicious sector rotations and gyrating yield curves creating a lack of consistency from funds.
"Our survey shows that the last three years have rewarded the brave, although the investment backdrop is not an easy one to navigate as we live in curious times with volatility eerily absent.”
Paul Stocks, financial services director at Dobson and Hodge in Doncaster said he maintained his confidence in the active sector despite the poor performance highlighted by the BMO survey.
“We believe that a well-managed active fund can outperform, net of charges, the market as markets are not fully efficient and also asset allocation calls can be made to reflect the macro.”
David.Thorpe@ft.com
