· 52 funds deliver consistent top quartile returns over three years, driven by value-focused and short duration bond funds
· IA Japan sector secures the most consistent top quartile performing funds, in contrast to the IA Strategic Bond which fails to secure any
· Guinness Global Energy Fund tops the chart as the best performing fund in Q3 2023 across the IA sectors
Research from the Multi-Manager team at Columbia Threadneedle Investments shows the number of funds delivering consistent top quartile returns over a three-year period is closing in on surpassing the historic average.
Fund Watch, a quarterly survey launched in 2008 by the Multi-Manager team at Columbia Threadneedle Investments, analyses the performance of the funds universe and the IA sectors, providing investors insight into where there is value to be found within active management. A copy of the full Q3 2023 survey can be downloaded here.
In Q3 2022 the number of number of funds delivering consistent top quartile returns over three years reached an all-time low since they survey began, with only 0.26% achieving this feat. Since, there has been a reverse in this trend, with the number of funds delivering consistent top quartile returns over three years increasing quarter-on-quarter and nearing the upper end of the historic range of between 2% and 4%. As of the end of Q3 2023, 52 funds out of 1,323 funds (3.9%) have delivered on this criteria, driven by value-focused and short duration bond funds. The IA Japan sector had the most consistently performing top quartile funds with an impressive 12.1% of offerings achieving this feat. The was followed by the IA UK Smaller Companies sector with 9.3% of funds.
In contrast, investors analysing the IA Strategic Bond sector would have failed to find a single fund to meet this criteria over the three year period, while the IA Asia, IA Global Mixed Bond and IA North American sectors only secured one fund in their respective sector.
Kelly Prior, Investment Manager in the Multi-Manager team at Columbia Threadneedle Investments, comments: “Having hit the all-time low point in consistency in this survey’s history a year ago, this quarter brought with it a continuation of the upward trend that started from that point. As is usually the case, this has been driven by a certain cohort, namely value funds in equity and short duration in bonds. However, the landscape is everchanging and the types of fund and manager that can succeed will need flex to reflect the opportunity set. What we see today is a stark contrast to three years ago, when the key characteristics for consistent funds in Q3 2020 were growth and long duration.
With the shock of COVID and all the changes in the investment landscape that came with it rapidly shifting from the rear-view mirror to the windscreen, it is a natural time to think about where we may go from here. Interest rates and inflation are at an interesting juncture, so while we have seen a changing of the guards in terms of consistent funds we are undoubtedly about to see a difference in the characteristics of what leads the performance pack in the coming quarters. In addition, India has been the surprise hit of 2023 so far, while its Chinese cousin has floundered. For years there has been a creative tension around the two countries as potential areas for investment with chaotic democratic India losing out to the structured, expansive and investment hungry China. While the latter licks its wounds having failed to live up to the post COVID boom hype, India has casually surged with investor interest heightened by the potential for an alternative exciting growth prospect from China.”
Other highlights from the Q3 2023 survey included:
- Top performing fund for the quarter: The Guinness Global Energy Fund was the top performing fund across the IA universe constituents over Q3 2023. Run by Jonathan Waghorn, Will Riley and Tim Guinness, the fund has a large cap value bias and uses a concentrated list of stocks to gain exposure to equities in exploration and production of oil, gas and other energy sources.
- Challenge to outperform the IA Standard Money Market Sector: Of the 57 IA sectors, only nine sectors beat the IA Standard Money Market sector average which returned 1.4%.
- IA sector performance skews: During the quarter, the IA India/Indian Subcontinent sector continued its strong run as the best returning sector average gaining 6.5%. Meanwhile, the IA Infrastructure sector was the worst performer falling 5.4%.
