The first quarter of 2022 saw the smallest number of funds in over a decade generate top quartile returns over three consecutive 12 month periods, according to the latest BMO Global Asset Management (EMEA) Multi-Manager FundWatch survey.
Just five (0.45 percent) of the 1,115 funds in the 12 sectors researched achieved top quartile returns consistently over a three-year period as at the end of Q1 2022, compared to 2.1 percent in the previous quarter.
This is the lowest number recorded since the FundWatch survey began in 2008 and is well below the historic average of between two and four percent. The funds registering top quartile returns were from five different sectors, the IA Europe ex-UK, the IA UK All Companies, IA £ Corporate Bond, IA £ Strategic Bond and IA Japan.
Lowering the rate to above median returns in each of the last three 12-month periods saw another new low of just 65 of the 1,115 funds reaching the feat, compared to 159 funds last quarter.
This meant the less demanding ratio decreased from 14.6 percent to 6.1 percent in Q1 2022, however all 12 main IA sectors still managed to contain at least one fund which delivered above median returns.
The most consistent sector was the IA £ Corporate Bond with 11.8 percent of funds performing above median returns for three consecutive years, followed by the IA Asia Pacific ex-Japan with 10.8 percent of funds. The IA Europe ex-UK sector was the least consistent performer, with just one fund achieving above median performance.
Rising bond yields and commodity prices
Already-rising bond yields and commodity prices were significantly impacted by the Russian invasion of Ukraine and the subsequent global sanctions against Russia. Only four of the 52 IA sectors made positive ground in the first quarter of 2022.
The straggler of the table was the IA European Smaller Companies sector which fell 13.4 percent as the already less-liquid part of the market was hit for its geographic proximity to the war and its regional reliance on Russian gas and oil.
All of the IA Bond sectors lost ground, with the worst being the IA Global Emerging Markets Bond Hard Currency sector losing 7.61 percent. In UK bonds, the IA UK Gilt sector fell a significant 7.29 percent reflecting the longer duration of the government bond market.
The IA Corporate Bond sector benefitted from structurally lower duration in the quarter, falling a comparatively modest 5.57 percent.
Rob Burdett, Head of the Multi-Manager People team at BMO Global Asset Management (EMEA), part of Columbia Threadneedle Investments comments: “The number of funds consistently achieving top returns fell dramatically in Q1 2022 due to the significant impact of the war in Ukraine, and the geopolitical effect on resource supply.
“In the last three years that the FundWatch survey covers we have seen the impact of several significant market events on funds, with the unprecedented impact of Covid, a return to inflation and the longer-term effects of climate change and related ESG considerations.
“The war in the Ukraine is the latest in market shocks, with the resulting sanctions having a significant impact on commodities, inflation and interest rates, as well as the impact at a sector level, with knock on effects for defence and energy stocks.
“These crises have caused significant gyrations in financial markets and underlying asset classes, resulting in the lowest consistency figures we have ever seen in the survey. Against this backdrop we may see new performance trends emerge, while the impact of this quarter on consistency of returns and volatility of funds may continue for some time.”
Other highlights from Q1 2022 survey included:
- The IA Latin American sector topped a table of IA sector averages gaining 26.5 percent as the region benefitted from sanction-hit Russia’s position in the commodities markets.
- All UK equity sectors fell, with the IA UK All Companies sector down 4.9 percent, and the IA UK Smaller Companies sector returning -13.1 percent.
- Currencies were volatile, usually in difficult times the Yen can be a seen as a safe haven – but not this quarter with a -2.4 percent return compared with Sterling.