BMO GAM: 2021 ends on a high as the number of top funds consistently performing increased nearly threefold in Q4

For the first time in 2021 the number of funds generating consistent top quartile performance returned to historical norms in Q4 2021, according to the BMO Global Asset Management (EMEA) Multi-Manager FundWatch survey.

Driven by the rotation back to growth as an investment style, the number of funds achieving top quartile returns over three years to the end of Q4 2021 rose to 2.9 percent, representing 31 of the 1,087 funds analysed. This was nearly three times higher than the one percent of funds achieved in the previous quarter and is comfortably within the historic range of between two and four percent for the first time since Q4 2020.

The IA Europe ex UK sector was the top performer of the 12 major market IA sectors achieving the most consistent top quartile returns once again, having been the leading sector since the second quarter of last year, with 8.1 percent of funds achieving this feat in Q4 2021. The IA UK All Companies and IA UK Equity Income sectors followed with 4.2 percent and 3.8 percent of funds achieving consistently top returns, respectively. On the flipside, the IA Emerging Markets and IA Japan sectors failed to deliver any funds that achieved this level consistency, and the IA Global Mixed Bond, IA £ Sterling Corporate and UK Smaller Companies sectors had just one fund in this category.

Highs and lows of 2021

Of the 52 IA sectors, 29 made positive ground in the fourth quarter. Looking at the FundWatch survey results of the 12 months of 2021, 15 of the 52 sector averages lost ground. The vast majority of these were bond sectors, however the worst fallers were the IA Latin America and IA China/Greater China sectors, falling 12.6 percent and 12.3 percent respectively. The IA India/Indian Subcontinent sector was at the top of the table for the same period, beating the IA North American sector with a return of 28.8 percent against 26.1 percent. The key takeout from this is to recognise that not all Emerging Markets are the same. India and China are vastly different markets and have offered different returns this year, yet both are significant proportions of the MSCI Emerging markets indices.

Kelly Prior, Investment Manager in BMO Global Asset Management’s Multi-Manager people team, commented: “The number of funds consistently achieving top returns improved in the fourth quarter, being the highest in 2021. The consistency figures have returned back to historical norms for the first time since Q4 2020 due to the reversion back to growth as an investment style in the last quarter.

“The final quarter of the year saw the continuation of the trend that started in the second quarter of 2021, namely the IA Europe ex UK being the most consistent in rolling top quartile terms and the US being among the least funds achieving this measure. For the five quarters before this, the reverse had been true, with the US taking the lead in the consistency stakes. Europe has always been a rich hunting ground for active managers who have historically been less stylistically skewed managers versus the US where the managers tend to specialise. As we see increasingly bifurcated markets, the rise in specialism for funds could mean higher consistency measures from a broader set of sectors as we see the ebb and flow of performance for more extreme mandates as economic fortunes change.”

Other highlights from Q4 2021 survey included: 

  • The IA North American sector topped a table of IA sector averages gaining 7.4 percent, with an impressive annual performance of a 12-month gain of 26 percent.
  • It was a quarter of mixed results for UK equity sectors with the IA UK All Companies sector gaining 2 percent, and the IA UK Smaller Companies sector falling 1.3 percent. The IA UK Equity Income sector gained 3.2 percent in comparison.
  • Emerging Market Bonds continued to lose ground in the quarter with both the IA Global Emerging Markets Bond Local Currency and IA Global Emerging Markets Bond Blended sectors losing -1.8 percent.

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