BMO GAM FundWatch: Performance Consistency Improves But 'something Doesn't Add Up'

The three months to 31 March saw equity markets rebound and markets and asset prices rally following a particularly tumultuous December, when the FTSE All-Share, TOPIX and MSCI World fell by 3.8%, 7.1% and 7.4% respectively over the month.

According to the BMO Global Asset Management Multi-Manager FundWatch survey, top-quartile returns stood at just 0.54% at the end of last year but rose to 2.2% in Q1 2019.

The IA UK Smaller Companies sector was the most consistent for top quartile returns, with 10.4% of funds achieving top-quartile consistency over the rolling three years to the first quarter of this year, having also been the the most consistent sector in Q3 and Q4.

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The IA £ Corporate Bond and IA Emerging Markets sectors followed with 8.9% and 5.2% respectively making the cut.

When the hurdle rate is lowered to above median, 122 of the 1,102 funds, or 11.1%, delivered above-median returns consistently, up from 10.8% in Q4 2018.

Apart from the IA Global Bond sector, all sectors saw some members make the cut on this measure. In the £ Corporate Bond sector 25.3% of funds delivered returns above the median, while the Emerging Markets and UK Smaller Companies sectors were the other standout performers, achieving 17.2% and 16.7% consistency respectively.

The first quarter of 2019 also saw a return to more normal consistency levels across all but one of the 12 major IA market sectors, as previous volatility eased.

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Kelly Prior, investment manager in the group's multi-manager team, said: "After a very challenging end to 2018 for active fund managers, our FundWatch survey has shown that fund performance lurched back into positive territory in all sectors in the first three months of the year.

"The initial nervous response to a change in tone from the US Federal Reserve in Q4 2018 transformed to euphoria in Q1 2019, with the central bank taking a more cautious stance.

"However, something doesn't quite add up; this quarter saw a significant drop in yields from government bonds, the US curve inverted in part and German bunds returned to negative territory, at the same time, equities surged. It will certainly be interesting to observe how this dynamic plays out throughout the rest of the year and into 2020."

Meanwhile, the strongest-performing fund during the quarter was the £54m IFSL Trade Union fund with exposure to growth sectors such as healthcare and industrials as the main drivers of returns.

In performance terms, the IA China/Greater China sector led the way, gaining 14.7%, with the IA Technology & Telecoms sector next best, rising 14.1%. The IA Short Term Money Market sector however was the laggard, returning just 0.1%, while the IA Standard Money Market sector gained only 0.2%.