More Europe ex-UK funds achieved consistently top quartile returns than any other Investment Association sector in the three years to Q2 2021, according to analysis by BMO Gam, stealing the spotlight from IA North America which struggled amid the reflation trade.
BMO Gam’s Fund Watch survey found that 1.9% or 20 of the 1,046 funds analysed from the 12 main Investment Association sectors consistently achieved top quartile returns over three years to the end of Q2 2021.
The multi-manager consistency ratio was barely up from the previous quarter’s readout of 1.8% and below the 2-4% historical average.
In terms of consistent top quartile returns, the Europe ex UK sector performed best, with 4.7% of funds meeting the target. It was followed by the Emerging Markets and Asia ex Japan sectors, which saw 3.6% and 3.1% of funds making the grade respectively.
However, the Global Mixed Bond, Japan, UK Smaller Companies and UK Equity Income sectors did not have a single fund achieve this level of consistency.
The North America sector, which has had the highest number of consistent outperformers for the last four quarters, stumbled in Q2 as the reflation trade picked up steam. Only 1.2% of funds in the sector achieved top quartile returns compared to 5.9% in Q1.
The number of funds managing to deliver above median returns consistently was higher in Q2 with 12.5% or 131 funds achieving this feat versus just 9.5% or 103 funds in Q1.
Baillie Gifford Health Innovation shines while Argonaut Absolute Return lags
The £95m Baillie Gifford Health Innovation fund, run by Julia Angeles, Marina Record and Rose Nguyen, led returns in the IA universe during the quarter with volatile but strong performance.
The fund, which is dominated by biotech, life sciences and healthcare equipment and supply companies, benefitted from a late quarter surge in growth stocks. Its largest holding Moderna (10%) saw its share price shoot up a massive 27% in June.
“The reflation narrative of the early spring bought with it blessed relief for those managers and funds who have been banging the valuation drum for so long,” said Kelly Prior (pictured), investment manager at BMO Gam.
But she added: “The Fed speak in the final weeks of June turned the market on its head, and back on the growth train we go.”
After dominating in Q1, the Argonaut Absolute Return fund lagged in the second quarter, after equity markets recovered.
The £29.5m fund gained over 22% in the early shock days of 2020, due to its shorting strategy. But since then, the fund has lost 6.7%, Prior notes, with the recent run in growth stocks going against manager Barry Norris’ preference for modestly priced stocks.
90% of IA sectors see positive improvement in Q2
Looking across all 46 IA sectors, 42 made positive progress in Q2.
The UK Small Companies sector topped the table of sector averages, gaining 9.8% over the period, followed closely by Technology and Telecoms, which rose 9.7%. On the other end of the spectrum, Japan was at the bottom of the table, losing 0.3%.
In general UK equity funds performed strongly, with UK All Companies gaining 5.6%, ahead of the UK Equity Income sector, up 5.1%. By contrast the Global Equity sector rose 7%, compared to a 4.8% rise for the Global Equity Income sector.
Following the IA’s decision to splinter its bond sectors into granular
The UK Index Linked sector, containing 12 funds, significantly outperformed the UK Gilt sector with its 26 funds, returning 4.1% compared to 1.5%, despite inflationary concerns.
Within high yield ranges, the Global High Yield Bond sector, containing 3 funds, returned 2.6%, compared to 2.2% for the GBP High Yield Sector, which contained 18 funds, and 1.7% for the USD High Yield sector, which has 2 funds.
See also: IA move to split up Global Bonds sector risks confusing casual investors
Among the mixed asset offerings, the Mixed 40-85% Shares sector performed best (5%), followed by Mixed Investment 20-60% Shares (3.7%) and Mixed Investment 0-35% Shares (2.5%).
The Targeted Absolute Return sector gained 1.6% in the quarter.
See also: Active funds under pressure to perform as IA adds 530 ETFs across sectors
