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“Eerily stagnant” market conditions see UK funds struggle

Pound strugglingUK funds are having trouble with performance as they face challenges such a geopolitical risk and record low yields, according to research.

The number of funds generating consistent top quartile returns continues to fall short of the historic average, with just 1.7% - or 19 - of 1,123 funds analysed managing to achieve consistent top quartile returns in each of the last three 12-month periods.

BMO Global Asset Management published the finding in its ‘Multi-Manager FundWatch’ survey. The historic range is between 2%-5%.

However, the research shows that performance in the last quarter of analysis (the third quarter this year) was slightly up on the previous quarter, when 1.6% of managers achieved consistent returns.

Managers in the UK smaller companies sector were the most consistent performers, with 6.4% managing top quartile returns over the timeframe, but two sectors - Asia Pacific ex-Japan and sterling corporate bond sectors - failed to have any consistently top quartile funds over the period.

Kelly Prior, investment manager in BMO GAM’s multi-manager team, said the better consistency within UK small-caps was down to the sector “not being as impacted by macro factors compared with the other sectors, allowing for superior stock picking which generates alpha”.

Of notable interest, said BMO GAM, 13 funds in the European ex-UK sector achieved median returns and eight of them were index trackers. Historically, the data shows that active managers have usually outperformed the index in this sector.

The sectors are those established by the Investment Association, and in the third quarter of 2018 North America saw the best performance, with a 7.4% return, while China/Greater China was the laggard with a 6.1% loss.

Prior said: “If we piece all the information together we can see how the continuation of low interest rates and absent inflation has created a vortex of goodwill for investments that benefit from the eerily stagnant conditions that we are currently experiencing.”

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