- 39 funds achieved top quartile performance to end of Q4 2023 compared to six in Q4 2022
- 1.1% decrease in number of top quartile performing funds compared to end Q3 2023
- IA Japan sector topped the table – 12.3% of funds delivered top quartile performance
- 249 funds delivered above median returns consistently (262 out of 1,323 funds Q3 2022)
- 54 of the 56 IA sectors averages made positive ground: the IA Latin American sector leading, gaining 12%
LONDON, 17 January 2024: Despite many markets hitting new peaks as 2023 drew to a close, there was a reduction in the number of funds delivering a consistently top quartile performance over a three-year period to the end of Q4 2023, compared to the Q3 2023, according to the latest Columbia Threadneedle Investments Multi-Manager Fund Watch survey.
Fund Watch, a quarterly survey launched in 2008 by the Multi-Manager team at Columbia Threadneedle, analyses the performance of the funds universe and the IA sectors, providing investors insight into where there is value to be found within active management. The Consistency Ratio’s historical average range is between 2-4%. A copy of the full Q4 2023 survey can be downloaded HERE
In Q4 2023 39 funds out of 1,416 achieved this feat, which equates to 2.8% of the selected universe, down from 52 funds out of 1,323 funds (3.9%) in Q3 2023. However, the number of funds delivering top quartile performance remains higher than that seen during the first half of 2023 when 27 out of the 1,286 funds (2.1%) achieved this feat in Q2, and 23 out of 1,261 funds (1.8%) during Q1.
The CT European Real Estate Securities Fund led the table of IA universe funds in the last quarter of 2023, whilst the Templeton China Fund compounded the negative sentiment towards Chinese equities as the worst performing fund in the IA sector.
The performance genie was let out of the bag in the final quarter of the year with 54 of the 56 IA sector averages making positive ground and 51 of the 56 beating the 1.4% return of the IA Standard Money Market sector average, compared to nine out of 57 in Q3 2023. The IA Latin American sector was the best returning sector average, gaining 12%, followed by the IA Technology & Telecom sector, which gained 11.8%, with the IA Property Other sector close behind, gaining 10.3%. The standout underperformer of the quarter was the IA China/Greater China sector which fell 8.4%, considerably more than the next worse sector which was the IA UK Direct Property which fell 0.2%.
Echoing its Q3 2023 performance, the IA Japan sector had the most consistently performing top quartile funds in the fourth quarter with an impressive 12.3% of funds achieving this feat. The next best was the IA Emerging Markets sector with 9.1% of funds. The IA £ Corporate, UK Equity Income and North American sectors all failed to have any funds hit the mark with the IA Europe ex UK, IA Global Mixed Bond and IA Sterling Strategic sectors only having one fund achieving consistently top quartile returns in the three consecutive 12-month periods.
Lowering the hurdle rate to above median in each of the last three 12-month periods also saw a fall with 249 of the 1,416 funds delivering above median returns consistently, compared to 262 funds in Q3 2023. This means this less demanding ratio fell to 17.6% from 19.8%. Once again, the IA Japan sector had the most consistently above average funds with 32.3% achieving this feat. The next best was the IA Asia ex Japan sector with 29.2% of funds qualifying. At the other end of the spectrum the IA UK Equity Income sector had the lowest percentage of funds achieving rolling 12-month consistency for the three years at 10%. Notably, all sectors had a number of funds achieving above average consistency.
What a difference a year makes
Comparing fund performance on a like-for-like basis at the same point in time last year shows a very contrasting picture. Despite fund performance improving from the all-time low of Q3 2022, which recorded three funds (0.26%) delivering consistent top quartile returns over the period, only six out of the 1,219 funds (0.5%) achieved top quartile returns over three years to the end of Q4 2022. The final quarter of 2022 saw 44 of the 57 IA sectors make positive ground.
Kelly Prior, Investment Manager in the Multi-Manager team at Columbia Threadneedle Investments, comments:
“Consistency faltered in the fourth quarter as the mood music again took on a different tempo. Having failed to respond to expectations of a change in rate outlook for much of the year, the final Federal Reserve meeting of 2023 offered a more dovish tone. Japan proved to be something of an outlier in 2023. A market often forgotten due to its ever-decreasing importance in global indices, it continues to prove a rich hunting ground for active management.
“As we peer into our tea leaves for inspiration for the year to come it strikes us that we may be nearing a time to be brave. China, the standout underperformer this quarter, looks ripe for a change of sentiment while India is priced for perfection, and if Private Equity needs to start deploying capital, then smaller companies are viewed as a steal, particularly in the UK. High Yield has been fabulous but when floating rates start to bite there will be winners and losers, and Emerging market central bankers have been ahead of the curve in hiking and then cutting interest rates while their developed market cousins sat on the sidelines. Indeed, a change in the fortunes of the ‘Magnificent 7’ stocks could result in a change in consistency outcomes for US Equities funds too.
“With continued geo-political tensions and an election year for 60% of the world population likely to throw significant curve balls into the mix, investing in 2024 certainly isn’t going to be for the fainthearted!!”
Other highlights from Q4 2023 survey included:
- There was a changing of the guard in the UK equity sectors with the UK Smaller Companies average leading the move upwards in the quarter with a 6.8% gain. The IA UK All Companies sector returned a respectable 4.5%, while the IA UK Equity Income a close 4.3%. The returns for the year remain significantly different however, with the IA Smaller companies average essentially flat while the IA UK All companies gained 7.2%.
- There were no consistently top quartile North American funds and 9 of the 20 that were consistently ahead of average were trackers.
- Sensitivity to interest rates was a major factor in the fortunes of bond sector returns with the IA UK Index Linked Gilt sector average gaining close to 10% in the quarter, though the 12-month return was a less stunning at 0.4%.
