Columbia Threadneedle’s Fund Watch survey for Q4 of 2023 marked 39 funds as achieving top-quartile returns over a three-year stretch, compared to just six funds achieving the status a year ago.
The 39 reaching the status make up 2.8% of funds, a decrease from the 3.9% of funds reaching a top-quartile performance in Q3 of 2023. Historically, the percentage of funds with top-quartile status has sat between 2-4%. While the number of specific funds with top-quartile performances decreased in the final quarter of the year, only two of the Investment Association’s 56 sectors failed to achieve positive total returns, on average.
Kelly Prior, investment manager in the multi-manager team at Columbia Threadneedle Investments, said: “Consistency faltered in the fourth quarter as the mood music again took on a different tempo. Having failed to respond to expectations of a change in rate outlook for much of the year, the final Federal Reserve meeting of 2023 offered a more dovish tone.
The Japan sector had the largest number of funds which reached top quartile, with 12.3% of the funds sitting within that group. Japan also had 32.3% of funds that performed above the median over three years.
“Japan proved to be something of an outlier in 2023,” Prior said. “A market often forgotten due to its ever-decreasing importance in global indices, it continues to prove a rich hunting ground for active management.”
The two sectors which recorded negative performance in the fourth quarter of 2023 were China/Greater China, which fell 8.4%, and UK Direct Property, which lost 0.2%. The greatest returns came from the Latin America sector, up by 12%, and the Technology & Telecom sector, returning an average of 11.8%. Property Other also saw strong gains, with an increase of 10.3%.
“As we peer into our tea leaves for inspiration for the year to come it strikes us that we may be nearing a time to be brave. China, the standout underperformer this quarter, looks ripe for a change of sentiment while India is priced for perfection, and if private equity needs to start deploying capital, then smaller companies are viewed as a steal, particularly in the UK,” Prior said.
“High yield has been fabulous but when floating rates start to bite there will be winners and losers, and emerging market central bankers have been ahead of the curve in hiking and then cutting interest rates while their developed market cousins sat on the sidelines. Indeed, a change in the fortunes of the ‘Magnificent Seven’ stocks could result in a change in consistency outcomes for US equity funds too.”