Kelly Prior, Investment Manager at BMO Global Asset Management, has told IFA Magazine: “Quality growth equity funds and long duration bond funds have benefited most from the current environment, as the comfort blanket of central bank policy that keeps investors at the party remains in place.”
According to the quarterly analysis, 2.3 per cent of 1,088 funds analysed in the 12 main IA sectors achieved consistent top quartile returns in each of the last three 12-month periods, as of the end of Q2 2019.
The IA £ Corporate Bond sector was the most consistent sector over the quarter with 7.7% funds achieving this feat. This was followed by the IA Emerging Markets and IA North American sectors, which had 3.5% and 3.4% of funds making the grade respectively.
The IA Global Bond sector was the only sector not to have any funds that delivered consistent top quartile performance.
Lowering the hurdle rate to above median in each of the last three 12-month periods, 152 of the 1,088 funds delivered above median returns consistently. This less demanding ratio rose to 14%, from 11.1% last quarter. The most consistent sector on this measure was the IA North American sector, with nearly a quarter (23.9%) of funds performing above median for three consecutive years.
The second quarter of 2019 saw a positive run for all IA sectors, with equities supported by the euphoria surrounding central banks activity keeping down the cost of funding through low interest rates. Bond markets also saw prices rise and yields fall, reflecting the other side of the story.
The IA Europe ex UK sector was the best performer gaining 8.7%, followed by the IA European Smaller Companies sector, rising by 8%. On the flipside, the IA Short Term Money market sector was the laggard returning 0.1%. The IA UK Smaller Companies sector was the strongest performer of the UK equity sectors gaining 4.8% and the IA £ Strategic Bond sector led in the UK bond space, rising 2.4% in Q2 2019.
Prior added: “Our analysis shows the ongoing challenge of generating consistent performance over a prolonged period, with the number of funds achieving this feat well within the historic range of between two and five percent.”
Rob Burdett, co-head of BMO Global Asset Management’s Multi-Manager team, commented: “It is notable that European equity funds are the least consistent performers, with North American equities the most consistent. We observe European funds in the sector have in general less strong style biases than in the US, for example fewer quality growth managers exist.
“In addition, there have been several significant stock-specific incidents that have affected a wide range of managers and styles during the period of our study. Against this backdrop however, the region had a great quarter, topping the tables.”