IA Europe ex UK sector highest proportion of top quartile funds over three years

BMO Global Asset Management's Multi-Manager FundWatch survey, which analyses 1,046 funds with a 3-year track record in the 12 main IA sectors, ranked the IA Europe ex UK as the top performer as of the end of Q2 2021, with 4.7% delivering top quartile returns over the three-year period.

In the previous four successive quarters, the IA North America equity sector saw the highest percentage of funds achieving this feat. The IA Europe ex UK's success this quarter was driven by the sector being less exposed to technology stocks, instead holding a greater proportion of consumer and financial companies.

In Q2 2021, 1.2% of funds in the IA North America equity sector achieved top quartile performing funds over three years, compared to 5.9% in Q1 2021. On the flipside, the IA

Global Mixed Bond, IA Japan, IA UK Smaller Companies and IA UK Equity Income sectors failed to deliver any funds that achieved this level consistency.

Kelly Prior, pictured left, investment manager in BMO Global Asset Management's Multi-Manager people team, said: "Finding funds that are consistently top quartile remains a challenge, and this will only become more so if we start to see rotation in the markets. There is the additional factor of more overt stylistic biases to the way that funds are run compared to long term history.

"However, periods of volatility is when active managers can add value, with mispriced stocks creating opportunities for bargain hunting until they are discovered."

Overall, 1.9% per cent of funds delivered top quartile returns over three years as of Q2 2021, which was slightly up on the previous quarter at 1.8%. Lowering the hurdle rate to above median in each of the last three 12-month periods saw 12.5% of funds delivering this achievement, an increase from 9.5% in previous quarter.

Prior added: "Inflation was the buzzword of the second quarter of this year, as the expectation of economic recovery and pent up demand driven spending coupled with supply bottlenecks dominating. As we see rotations in the markets driven by changing economic conditions, we expect to see different managers rise to the top or fall to the bottom of the performance tables.

Growth

"Growth and longer duration assets that benefit in a low interest rate environment have had the upper hand for the vast majority of the time since the global financial crisis, although it will be interesting to see how things develop as Federal Reserve tapering looms"

The UK equity sectors are gaining momentum, with the IA UK All Companies sector rising 5.6%, just ahead of the IA UK Equity Income sector up 5.1%. The IA UK Smaller Companies sector topped the table of IA sector averages, gaining 9.8%, while the IA Technology and Telecoms sector was close behind at 9.7%. The IA Japan sector average lost 0.3% in the quarter, whereas most sector averages gained.

The survey also revealed that the £95m Baillie Gifford Health Innovation fund run by Julia Angeles, Marina Record and Rose Nguyen was the best performing fund in Q2 2021.

Focusing on biotech, life sciences and healthcare equipment, and supply companies, the fund was a beneficiary of the late quarter surge in growth. In particular, the likes of its largest holding Moderna (c.10%) had a large impact when the firm hit an all-time high share price in late June 2021.