Top performance missed by 98% of funds

Despite an uptick in the final quarter of 2017, the number of funds delivering top quartile returns consistently over a three year period remains below the historic average according to the FundWatch survey conducted by the multi-manager team at BMO Global Asset Management.

The historic average is between 2 and 5 per cent of funds, the BMO team said.

The proportion has, however, increased from a low of 0.8 per cent of funds.

The best sectors for consistent top quartile returns were the Strategic Bond, UK Smaller Companies and Japan sectors.

Meanwhile, the proportion of funds generating above median returns in each of the last three 12-month periods dropped to 9 per cent at the end of 2017.

UK Smaller Companies funds were the most consistent in delivering above median returns, with 17.4 per cent of the sector achieving this.

Kelly Prior, investment manager at BMO, said: “Fund managers are still finding it challenging to deliver consistent performance over the long-term. While we have seen a slight increase in the number of funds delivering top quartile performance over three years, it’s still falling short of the industry average.”

Gary Millward, financial consultant at Alan Steel Asset Management, said: “I’m not surprised to see the inconsistency in fund performance over the past three years. Active funds still tend to fall into two camps: value or growth. While value had a strong run in 2016, growth was strong last year, so if a fund has a bias to either style it’s going to affect three-year performance.”

Over a three month period to the 31 December, BMO’s study found the Japanese Smaller Companies sector was the strongest performer and Baring Korea the top performing fund, achieving the best return compared to its base market of all funds in the last three months of the year.

The Short Term Money Market was the weakest sector over three months, while Manek Growth, which has now closed, was the worst performing fund.