The number of funds consistently delivering top quartile performance consistently over the last three-year period increases nearly fourfold in q1 2023 from q4 2022.
Following the challenging second half of 2022, the number of funds delivering top quartile performance consistently over the last three 12-month periods is starting to show signs of improvement in the first quarter of 2023, yet the figure is still below the historical average range of between 2 to 4 percent.
According to the latest Columbia Threadneedle Investments Multi-Manager Fund Watch survey[1], in Q1 2023, 23 (1.8 percent) out of the 1,261 analysed funds achieved consistent top quartile returns over three years to the end of Q1 2023. This compares with 6 (0.5 percent) funds in Q4 2022 and the all-time low[2] in Q3 2022 with only 3 (0.26 percent) funds achieving this feat.
The Q1 2023 Fund Watch survey showed the IA UK Smaller Companies sector as having the highest proportion of consistently top quartile funds in the three consecutive 12 month periods as of the end of Q1 2023, at 8.7 percent, followed by the IA Europe ex UK sector with 5.4 percent of funds. In contrast, the IA Emerging Markets and IA £ Corporate Bond sectors failed to have any funds secure the consistently top quartile performance criteria which is the fourth quarter in a row for the IA £ Corporate Bond category (since Q1 2022).
The survey shows there is an improvement in consistency of performance across the fund universe. The proportion of funds delivering above median returns in each of the last three 12-month periods also showed a significant uptick with 136 (10.8 percent) of 1,261 funds delivering above median returns consistently, compared to 82 funds (6.7 percent) in the previous quarter. As well as delivering the highest proportion of top quartile funds over three consecutive 12 month periods, the IA UK Smaller Companies sector also delivered the top number of consistently above median returns funds with 19.6 percent achieving this feat. All the 12 main IA sectors still managed to contain funds that met the less demanding above median consistency hurdle.
Positive run for Europe and UK bonds
In the first quarter of 2023, 46 of the 57 IA sectors made positive ground, there was a diverse list of sectors that faltered with challenging conditions for financials and slowing economic conditions a likely cause. The IA India/Indian Subcontinent sector continued to face headwinds after a difficult Q4 2022, losing 5.5 percent in Q1 2023, the IA Healthcare sector was close behind in Q1 2023 dropping 4.6 percent.
Europe continued its positive run from the previous quarter with the IA Europe ex UK sector gaining 7.6 percent in Q1 2023, only beaten by the IA Technology and Telecoms sector which grew by 15.3 percent, followed by the IA Europe Inc UK sector gaining 7 percent. The UK Bonds sector also continued to have healthier returns in the Q1 2023, with the strongest being the IA UK Index Linked sector gaining 5.2 percent followed by the IA £ Corporate Bond sector rising 2.2 percent.
Kelly Prior, Investment Manager in the Multi-Manager team at Columbia Threadneedle Investments, comments: “Whilst it is pleasing to see there has been an uptick number of funds achieving rolling consistency in the quarter, the number still remains low and below the historical average range. It is interesting to see that the lack of dominance of one style of investing when we look at the constituents of the funds in the top performing quartile list.
“If we are, as many suspect is the case, moving into an environment where returns can be made from more than a small handful of stocks, we could well see the number of consistently top performing funds continue to grow in time. We are entering a period of lower economic growth with higher cost of capital and inflation. This undoubtedly will bring with it both winners and losers across different sectors, but also within every sector as the stronger players gain market share. Understanding the fundamentals of companies and investments has rarely been more important, or interesting.”
