Fund managers investing in UK smaller companies have been more consistently achieving top quartile returns than managers investing in other UK fund sectors, research shows.
The Investment Association (IA) UK Smaller Companies sector delivered the highest proportion of funds – or 6.25% - achieving top quartile returns in each of the last three years.
BMO Global Asset Management’s ‘Multi-Manager FundWatch’ survey found in total that only half a percent – or six – of 1,108 funds analysed in the 12 main IA sectors achieved consistent top quartile returns in each of the three 12-month periods ending December 31, 2018.
Eight sectors failed to have any consistently top quartile funds.
The firm said the number of funds generating consistent top quartile returns had “fallen significantly as the relentless rotation in markets and asset prices take their toll”.
However, 120 of the 1,108 funds delivered above median returns in each of the last three 12-month periods, with all 12 main IA sectors securing at least one fund.
But the consistency ratio among above-median performers was down from the previous quarter, falling from 14.4% in the third quarter of 2018 to 10.8% in the final quarter.
Kelly Prior, investment manager at in BMO GAM’s multi-manager team, said: “Our analysis showed that the last quarter of 2018 was challenging for active management as the vicious rotation in markets and asset prices created a torrid investment environment.
“With a massive risk off rush in December, profit taking in the growth darlings was replaced by the need for safety and the perceived security of government bonds and staple equity sectors.”
But with the European Central Bank now firmly stating its withdrawal from supporting the market at a time when the US Federal Reserve is doing the same, natural market forces should come into play and provide “a more fruitful time for active management in 2019”.
The best-performing fund in the fourth quarter was the £205 million Investec Global Gold fund run by George Cheveley.
The target absolute return sector “remained disappointing”, BMO GAM’s report said: The sector “failed to live up to its name”, falling 2.3% in the quarter and the 12-month return for the sector remains a disappointing -2.%.
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