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IA Europe ex UK sector secures the highest proportion of top quartile performing funds over three years

The IA Europe ex UK sector took the baton from the IA North American sector for delivering the highest proportion of funds with top quartile returns over three 12-month periods as of the end of Q2 2021, according to BMO Global Asset Management’s Multi-Manager FundWatch survey.

The FundWatch survey, which analyses 1,046 funds with a 3-year track record in the 12 main IA sectors, ranked the IA Europe ex UK as the top performer as of the end of Q2 2021, with 4.7 per cent of funds delivering top quartile returns over the three-year period. In the previous four successive quarters, the IA North American Equity sector saw the highest percentage of funds achieving this feat.

The IA Europe ex UK’s success this quarter was driven by the sector being less exposed to technology stocks, and instead a greater proliferation of consumer and financial companies. In Q2 2021, 1.2 per cent of funds in the IA North America Equity sector achieved top quartile performing funds over three years, compared to 5.9 per cent in Q1 2021. On the flipside, the IA Global Mixed Bond, IA Japan, IA UK Smaller Companies and IA UK Equity Income sectors failed to deliver any funds that achieved this level consistency.

Overall, 1.9 per cent of funds (20 of the 1046 funds analysed) delivered top quartile returns over three years as of Q2 2021, which was slightly up on the previous quarter at 1.8 per cent. Lowering the hurdle rate to above median in each of the last three 12-month periods saw 12.5 per cent of funds delivering this achievement, an increase from 9.5 per cent in previous quarter.

UK equity sectors gaining momentum

Of the 46 IA sectors, 42 made positive ground in the second quarter with a shift into higher beta areas at the top of the table. It was a strong quarter for UK equity sectors, with the IA UK All Companies sector gaining 5.6 per cent, just ahead of the IA UK Equity Income sector up 5.1 per cent. The IA UK Smaller Companies sector topped a table of IA sector averages gaining 9.8 per cent, the IA Technology and Telecoms sector was close behind at 9.7 per cent. The IA Japan sector average lost 0.3 per cent in the quarter, when most sector averages gained.

Kelly Prior (pictured), Investment Manager in BMO Global Asset Management’s Multi-Manager people team, comments:

“Finding funds that are consistently top quartile remains a challenge, and this will only become more so if we start to see rotation in the markets. There is the additional factor of more overt stylistic biases to the way that funds are run compared to long term history. However, periods of volatility is when active managers can add value, with mispriced stocks creating opportunities for bargain hunting until they are discovered.

“Inflation was the buzz word of the second quarter of this year, as the expectation of economic recovery and pent up demand driven spending, coupled with supply bottlenecks dominating. As we see rotations in the markets driven by changing economic conditions, we expect to see different managers rise to the top or fall to the bottom of the performance tables. Growth and longer duration assets that benefit in a low interest rate environment have had the upper hand for the vast majority of the time since the global financial crisis, although it will be interesting to see how things develop as Federal Reserve tapering looms”

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