The number of funds delivering top quartile returns consistently over three years remains below the historic average, according to the quarterly FundWatch survey conducted by BMO Global Asset Management.
Only 1.24 per cent of funds delivered consistent top quartile performance over three years as at the end of final quarter of 2017. This compares the historic average of between 2-5 per cent.
While most funds failed to generate consistent outperformance over three years, the IA £ Strategic Bond sector was the most consistent for top quartile returns at 4.6 per cent. It was followed by the IA UK Smaller Companies (4.4 per cent) and the IA Japan sector (4.2 per cent).
The best-performing sector was IA Japanese Smaller Companies, up 9.2 per cent. It was closely followed by the IA Asia Pacific including Japan sector which went up by 8.9 per cent.
The outlook for Japan has been improving throughout 2017 and looks set to continue into 2018. Valuations continue to look cheap compared to the developed markets of the US and UK.
At a recent press briefing, Anthony Willis, investment manager at BMO argued that he expects UK economic growth to continue in 2018, as overall global growth looks positive. While the economic growth cycle seems a long one, Willis cautioned: ‘These things don’t tend to die of old age, but something happens. The usual risk is a shock of some kind, a political risk would be obvious this year.’
In the UK, he said that keeping an eye on inflation and wage data will be key in 2018. Meanwhile, ‘Asia and emerging markets remain attractive, even after a strong year in 2017.’
The IA Short Term Money Market and IA Money Market Sectors were the laggards, returning only 0.02 per cent and 0.06 per cent respectively, demonstrating the challenge faced by investors who opt to hold cash in the current environment.
Kelly Prior, investment manager in BMO Global Asset Management’s Multi-Manager team, says: ‘Our survey shows fund managers are still finding it challenging to deliver consistent performance over the long-term. While we have seen a slight increase in the number of funds delivering top quartile performance over three years, it’s still falling short of the industry average.’
Ben Yearsley, director at Shore Financial Planning, says: ‘The last few years have seen very polarised markets, especially in the UK with index years followed by stock pickers years.
‘Three-year numbers will look a bit odd currently. However, it’s not something that concerns me, it’s more about knowing why a fund is under or out performing and how they fit with other funds in your portfolio.’
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