Only four funds – a record low – have delivered top-quartile total returns in each of the past three discrete 12-month periods, research by Columbia Threadneedle’s multi-manager team has found.
The team’s quarterly Multi-Manager FundWatch report looks at 12 major fund sectors in the Investment Association universe, assessing performance of their members in each of the past three 12-month periods.
The MM Consistency Ratio, which is the hardest test in the research, seeks funds that were in the top quartile for each of these periods. In the Q2 report it was found that just 0.35% of funds – or four of the 1,153 examined – achieved this.
This ratio’s typical range over the time that the team has been running this research is around 2 to 4%.
Kelly Prior, an investment manager in Columbia Threadneedle’s multi-manager team, pointed out that the latest result follows an MM Consistency Ratio of 0.45% in the Q1 report and “remains in stunningly low territory”.
Lowering the hurdle rate to a less taxing standard – simply above median in each of the last three 12-month periods – saw another new low, with just 58 of the 1,153 funds making the grade, compared with 68 last quarter.
This means this less demanding ratio “collapsed” from 6.1% to just 5% in the second quarter of 2022.
The MM Consistency Ratio
Source: Columbia Threadneedle, Lipper, 31 Mar 22 to 30 Jun 22
“It is staggering to see Q1’s exceptionally low numbers superseded and a new all-time low established so quickly. Very few funds have proven capable of navigating these choppy market waters,” Prior said.
“That said, it is testament perhaps to managers that they are holding their nerve and not trying to chase these very unusual markets. Indeed, the only hiding place this year really has been cash – and that is far from the natural hiding place of most active managers who will be not fearful, but instead excited by the opportunity that this current turmoil can offer for the long-term investor (as opposed to trader).”
Prior added that, unlike until quite recently, there is no dominance of any one style or flavour of mandate in the funds contributing to the consistency ratio.
For much of the past decade, the strongest performance has come from growth stocks, especially those in the US tech space, but rising inflation and interest rates have prompted a rotation away from growth towards the value style. This has caused many of the previously highest-returning funds to fall to the bottom of the performance tables.
“The next big trend is up for grabs, but we may have to wear some volatility before the next pattern emerges,” Prior finished.