For the third quarter in a row, the IA North American sector has secured the highest proportion of funds achieving consistent top quartile returns over three consecutive 12 month periods, according to the latest BMO Global Asset Management Multi-Manager Fund Watch survey.

The IA North American sector achieved 7 percent of funds consistently reaching top quartile performance over a three-year period as well as 26.7 percent of funds in the sector achieving median returns over this period, which is the highest proportion of the 12 major sectors analysed. On the flipside, the IA £ Strategic bond sector failed to have any funds achieving consistently top quartile returns in the period, and was bottom of the ranks for median consistency, with only one in 10 achieving this target. The survey also revealed that the total number of funds achieving top quartile returns consistently over a three-year period as at the end of Q3 2020 fell to 4 per cent (44 of the 1,090 funds), compared to 5 percent in the previous quarter. However, this figure is still sitting within the top end of the historic average of between 2 and 4 per cent. All the 12 main IA sectors contained funds that met the less demanding above median consistency hurdle in this quarter.

2020 so far: the investment dichotomy 

The first three quarters of 2020 saw 19 of the total 39 IA sectors making positive gains, with the riskiest and safest assets outperforming, such as long dated bonds, technology and small cap equity. During the quarter the IA Japanese Smaller Companies sector topped a table of IA sector averages gaining 10 per cent during the quarter, while all Corporate Bond sectors made positive grounds. Unsurprisingly, the IA £ High Yield sector led, gaining 3.2 per cent, with the IA Strategic Bond sector returning 1.9 per cent. Other highlights from the quarter included:

• The IA Global Equity sector rose 4.2 percent against a return of 1.5 per cent for the IA Global Equity Income sector. This contrast is due to the lack of companies paying dividends which continued to hinder the sector’s ability to progress. On a year to date basis the difference is now 5.1 per cent for the IA Global Equity Sector against -4.7 per cent for IA Global Equity Income sector.
• Of the UK equity sectors the IA UK Smaller Companies sector was the best performer gaining 5.3 per cent, although the sector is still down 11.7 per cent in 2020 so far.
• The IA UK Gilt sector gave back 1.1 per cent in Q3 after a stunning run but has still gained 8.9 per cent year to date. The IA index Linked sector, which has an even greater sensitively to long term interest rates, fell 1.7 per cent but is still up 11.9 per cent in the last nine months.

Kelly Prior, Investment Manager in BMO Global Asset Management’s Multi-Manager people team, commented: “The third quarter of the year proved to be something of a mixed blessing for investors. The consistency figures for the three years to the end of Q3 2020 came down to more normal levels. The US has been the standout so far this year, and this is reflective of the IA North American sector securing the highest proportion of funds to achieve top quartile and above median returns consistently over this period. This comes as no surprise, with big tech stocks making up some of the biggest drivers of the US market rally. In contrast, the IA Strategic bond sector has faltered somewhat, failing to record any consistently top quartile performers over this period. This is perhaps a reflection of the breadth of the mandates for the managers, with little gains in spread relative to a long duration strategy in recent times.

“Looking ahead, it is difficult to see markets making significant progress, and the brief moment in the sun for the unloved value segments of the market within the quarter was an interesting interruption to what has otherwise been a one way bet for all things ‘quality growth’. Nonetheless, our longstanding survey shows that there are funds out there which have proved their ability to navigate choppy investment markets and deliver alpha. It’s never been more important to have a rigorous fund selection process in order to find the hidden gems that can position for the environment we are entering into rather than that which we have been in.”