Funds see decline in third quarter top quartile returns

The number of funds in the UK generating consistent top quartile returns declined in Q3 2021, driven by market uncertainty since the start of the Covid-19 pandemic. 

According to the latest BMO Global Asset Management Q3 2021 FundWatch survey, only 11 of the 1,068 funds analysed in the 12 main IA sectors achieved consistent top quartile returns in the each of the last three 12-month periods, as the end of Q3 2021. 

It marks a decline on the previous quarter which recorded 20 funds and is considerably lower than the historic range of between 2%-4%.

In the 12 major market IA sectors, the IA Europe ex UK sector secured the highest proportion of funds with top quartile returns, with just three funds achieving this. This was followed by the IA Japan and IA UK Smaller companies’ sectors which both had 2.2% of funds making the grade respectively, though in reality this amounted to just one fund in each sector.

Half of the 12 main IA sectors failed to secure a single fund with top quartile performance over the rolling three years – the IA Global Mixed Bond, IA Asia ex Japan, IA Emerging Markets, IA North American, IA UK Equity Income and IA £ Strategic Bond sectors.

Three of the new IA sectors, however, did feature in the top five best performing IA sectors in Q3, 2021. The newly created IA India/Indian Subcontinent sector which is made up of 16 funds topped a table of IA sector and was the top performing sector of the quarter, gaining 14.8%. The IA Japan Sector was next best, rising 7.1%. 

Kelly Prior, investment manager at BMO Global Asset Management’s Multi-Manager team, said: “It has been 18-months since the start of the Covid pandemic, marking half of the three-year period analysed in our FundWatch survey. This period of volatility has had a negative impact on the consistent delivery of top quartile fund performance across the fund universe and this has therefore further bolstered investor demand for passively managed products.”

Prior added a shift in monetary policy may “reverse the trend” over time, across different areas of investment.

“Given the IA has offered a more granular approach to peer group analysis, we are seeing an ever-increasing swathe of investment offerings in niche sectors and countries. While some of the new IA sectors were some of the highest performers in the third quarter, history has shown that such focused approaches often come with additional volatility,” she said.

Other highlights from the Q3 2021 survey included the newly dissected IA bond sectors which showed dominance of USD issues in the performance stables. The IA USD Government Bond showed a 2.8% increase, followed by the IA USD Mixed Bond sector with a 2.7% increase. 

The IA UK gilt sector was the worst UK bond sector in the quarter, falling 1.4%, with the IA Corporate Bond sector next worst at -0.5%. 

The £55 million Liontrust India Fund run by Ewan Thompson had the highest returns in the quarter. The Fund transferred from Neptune to Liontrust as part of the 2019 merger and went into the third quarter with its largest active positions in the materials, IT, and financial sectors. The Fund continues to run a significant underweight position across the consumer sectors, where growth and valuations are less compelling.

BMO is a global investment manager which is part of BMO Financial Group a financial services provider based in North America with total assets of CDN $971 billion as of July 31, 2021.

© 2021 funds europe



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