BMO GAM: rotational markets impact the number of funds delivering consistent top quartile returns

The number of funds generating consistent top quartile returns declined in Q3 2021, driven by the market uncertainty since the start of the COVID-19 pandemic.

That’s according to the latest BMO Global Asset Management Multi-Manager FundWatch survey, only 11 (1.03% percent) of the 1,068 funds analysed in the 12 main IA sectors achieved consistent top quartile returns in the each of the last three 12-month periods, as of the end of Q3 2021. This is a decline on the previous quarter which recorded 20 funds (1.9 percent) and is considerably lower than the historic range of between two and four per cent.

Of the 12 major market IA sectors, the IA Europe ex UK sector secured the highest proportion of funds with top quartile returns, with just three funds (3.5 percent) achieving this feat. This was followed by the IA Japan and IA UK Smaller companies’ sectors which both had 2.2 per cent of funds making the grade respectively, though in reality this amounted to just one fund in each sector. Half of the 12 main IA sectors failed to secure a single fund with top quartile performance over the rolling three years: the IA Global Mixed Bond, IA Asia ex Japan, IA Emerging Markets, IA North American, IA UK Equity Income and IA £ Strategic Bond sectors.

Three of the new IA sectors feature in top five best performing IA sectors in Q3 2021

Of the 52 sectors*, 42 made positive ground in the third quarter. The IA has recently launched new sectors which divide up the funds into smaller groups allowing greater understanding of where positive gains were made in the quarter. Interestingly, of the newly created sectors, three were among the top five performers in the last quarter. The newly created IA India/Indian Subcontinent sector which is comprised of 16 funds topped a table of IA sector and was the top performing sector of the quarter, gaining 14.8 percent. The IA Japan Sector was next best, rising 7.1 percent, however on the flipside, the newly created IA Latin American Sector fell 12 percent.

Kelly Prior (pictured), Investment Manager in BMO Global Asset Management’s Multi-Manager team, commented: “It has been 18-months since the start of the COVID pandemic, marking half of the 3-year period analysed in our FundWatch survey. This period of volatility has had a negative impact on the consistent delivery of top quartile fund performance across the fund universe and this has therefore further bolstered investor demand for passively managed products. As we start to see a shift in monetary policy, we expect this trend to reverse over time with a jostling for position going on within different areas of investment.

“Given the IA has offered a more granular approach to peer group analysis, we are seeing an ever-increasing swathe of investment offerings in niche sectors and countries. While some of the new IA sectors were some of the highest performers in the third quarter, history has shown that such focused approaches often come with additional volatility.”

Other highlights from Q3 2021 survey included:

  • The newly dissected IA Bond sectors showed the dominance of USD issues in the performance tables with the IA USD Government Bond (+2.8 percent) just pipping the IA USD Mixed Bond sector (+2.7 percent) to being the quarter’s best bond sector.
  • The IA UK Gilt sector was the worst UK bond sector in the quarter, falling 1.4 percent, with the IA Corporate Bond sector next worst at -0.5 percent.
  • Emerging Market Bonds also faltered in the quarter as the rising dollar cast a shadow over the region’s debt with both the IA Global Emerging Markets Bond Local Currency (-0.6 percent) and IA Global Emerging markets Bond Blended sector (-0.4 percent) losing ground.
  • The £55m Liontrust India Fund run by Ewan Thompson, had the highest returns in the quarter. The Fund transferred from Neptune to Liontrust as part of the 2019 merger and went into the third quarter with its largest active positions in the materials, IT and financial sectors, reflecting their highest-conviction ideas that continue to benefit from the strong economic backdrop, as the covid pandemic continues to abate in the region. The Fund continues to run a significant underweight position across the consumer sectors, where growth and valuations are less compelling.


Featured News

This Week’s Most Read

Wealth DFM