The survey found across all Investment Association (IA) sectors historically, some 2-5% of funds delivered consistent top quartile performance over three years, but this fell to just 1.24% over three years to the end of the fourth quarter 2017.
Returns were boosted by strong performance in the fourth quarter, with all 37 IA sector achieving positive returns over this period. Indeed, stripping out fourth quarter gains, over three years to end of the third quarter just 0.8% of funds delivered top quartile returns on a consistent basis.
Strategic bonds lead the way
With 2017 proving a strong year for inflows into the strategic bonds, those who did invest will be heartened by the fact that the IA Strategic Bond sector proved the most consistent for top quartile returns at 4.6%. The next most consistent sector was IA UK All Companies (4.4%), followed by Japan (4.2%).
According to the research, the number of funds generating above median returns in each of the last three 12-month periods fell from 9.7% to 9% at the end of the fourth quarter in 2017. All 12 of the main IA sectors met this criteria, with the UK Smaller Companies sector the most consistent, with 17.4% of funds achieving the feat.
“Our survey shows fund managers are still finding it challenging to deliver consistent performance over the long term,” Kelly Prior, an investment manager in BMO Global Asset Management’s multi-manager team, said. “While we have seen a slight increase in the number of funds delivering top quartile performance over three years, it’s still falling short of the industry average.”
She added: “While the majority of funds are failing to generate consistent outperformance over three years, we saw markets gain ground in the final quarter of 2017. All IA sectors achieved positive returns with Japanese Smaller Companies leading the drive.
“The challenge for investors holding cash was amplified with the IA Short Term Money Market sector being the performance laggard for the quarter, while the shift in expectations of future interest rates benefited sectors and funds with longer duration and greater sensitivity to change in the long end of the UK yield curve.”
