Fund Watch - Q1 2019

Fund Watch uses our team’s process to highlight the past quarter’s developments in the fund world.

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Fund Watch uses our team’s process to highlight the past quarter’s developments in the fund world. It is fact-based and uses performance analysis which forms part of our investment process. All data is from Lipper for Investment Association (IA) sectors and is calculated in total return terms in sterling for periods ending 31 March 2019.

This quarter’s report includes the following analysis:

  • The BMO MM Consistency Ratio – highlighting the surprisingly limited number of funds beating their peers on a regular basis
  • Tops and Bottoms – the ultimate winners and losers over the quarter
  • Sector Skews – the best and worst of the 37 IA sector averages
  • Risky Business – a look at the leading funds for combining first class longer-term returns with the lowest levels of volatility

Top quartile performance rolling 3 years: 2.8%

Above average performance rolling 3 years: 11.07%

Source: Lipper, 31-Dec-2018 to 31-Mar-2019, percentage growth, total return.

The BMO MM Consistency Ratio

Here we conduct a review of the 12 major market sectors, filtering out only those funds that are consistently above average in each of the last three 12-month periods, and those consistently top quartile. In the 12 main sectors researched, there are currently 1,102 funds with a three-year track record.

  • The BMO MM Consistency Ratio for top quartile returns over three years (to the end of Q1 2019) rose to 2.2% (0.54% last time), with 24 of the 1,102 funds achieving this feat. This ratio was within the usual historic range of around 2-5%.
  • The IA UK Smaller Companies sector was yet again the most consistent for top quartile returns, with 10.42% of funds making the cut. It was followed by the IA £ Corporate Bond and IA Emerging Market sectors, which had 8.9% and 5.2% of funds making the grade respectively. Four of the 12 sectors failed to have any consistently top quartile funds over the period.
  • Lowering the hurdle rate to simply above median in each of the last three 12-month periods saw 122 of the 1,102 funds delivering above median returns consistently. This means this less demanding ratio rose to 11.1% from 10.8%.
  • 11 main IA sectors had funds meeting the less demanding above median consistency hurdle. The IA Global Bond sector was the exception. The most consistent sector on this measure was the IA £ Corporate Bond sector, with 25.3% of funds performing above median for three consecutive years. The IA Emerging Markets and IA UK Smaller Companies sectors were the next best with 17.2% and 16.7% respectively achieving the target.

BMO MM comment

Q1 2019 saw a return to more normal consistency levels as markets rebounded from the dramatic falls of Q4, despite a lack of tangible rationale aside from a belief central banks have our backs.

We do not recall ever not seeing a single fund in a sector achieve above average returns on a rolling 12-month consistency basis for three years. Currencies have been exceptionally volatile alongside yield curves and we think this is likely to continue for the foreseeable future, making conditions challenging for funds in the IA Global Bond sector.

The first quarter saw a significant drop in yields from government bonds; the US curve inverted in part and German bonds returned to negative territory. At the same time, equities surged – something doesn’t quite add up. There is little in terms of quality data to support anything more than a trading rally to justify the returns that have been seen year to date. Caveat emptor.

Tops and bottoms

Identifying the best and worst performers of all funds in the quarter across all 37 IA sectors.

Source: Lipper, 31-Dec-2018 to 31-Mar-2019, percentage growth, total return.

The £54m IFSL Trade Union Fund run by James Laing was the strongest performer in the IA universe in the first quarter of 2019. Investing in the UK and Europe, the fund has a strong skew to quality growth companies, predominantly in Consumer Goods, Healthcare and Industrials – all of which benefited from the rally in markets in the first quarter.

The £562m BMO Global Equity Market Neutral Fund was the worst performer of the IA peer group in the first quarter. The fund is part of a suite of products run in a systematic way to give positive absolute returns over the medium term. The fund is run with a volatility target, which saw it perform very strongly in Q4 of 2018, gaining 4% when most funds lost ground.

Sector skews

Identifying the best and worst performers in the quarter across all 37 IA sectors.

Source: Lipper, 31-Dec-2018 to 31-Mar-2019, percentage growth, total return.

The first quarter of 2019 saw a lurch back into positive territory for all sectors following a torrid final quarter in 2018.

The initial nervous response in Q4 to a change in tone from the US Federal Reserve changed to euphoria in Q1 2019, with the central bank taking a more cautious stance to withdrawing the punch bowl from the party. A lack of aggressive trade talk headlines also helped buoy the mood.

The IA China/Greater China was the best-performing sector, gaining 14.7%, with the IA Technology & Telecoms sector next best, rising 14.1%. On the flipside the IA Short Term Money Market sector was the laggard, returning 0.1%, with the IA Standard Money Market sector the next worst, gaining 0.2%.

The IA UK All Companies sector was the strongest performer of the UK equity sectors, gaining 8.9%, with the IA UK Equity Income sector next best, gaining 8.7%. The IA UK Smaller Companies sector was at the back of the pack, rising 7.1%.

The IA UK Index Linked Gilt sector led in the UK bond space, rising a staggering 6% in Q1, with the IA £ High Yield next best, gaining 5.1%. The IA £ Corporate Bond sector gained 3.9% in comparison. The IA £ Strategic sector was the worst of the UK bond sectors but still achieved a very respectable 3.6%. The IA Global Bond sector underperformed all of the UK-centric bond sectors, gaining 1.8% in the quarter.

The IA Targeted Absolute Return sector gained 1.6% in the quarter. Over the 12 months to the end of Q1, the sector lost 0.4%.

Looking at the Mixed Asset IA sectors, the exposure to equity dictated the ranking of the sectors, with the IA Mixed Investment 40-85% Shares sector leading the pack, rising 6.5%. The IA Mixed Investment 20-60% Shares sector was the next best, gaining 5.1%, with the IA Mixed Investment 0-35% Shares sector the laggard, rising 3.8%. 

The IA Global Equity sector rose 9.6% against a rise of 8.1% for the IA Global Equity Income sector.

Piecing the last two rather volatile quarters together, the best place to have your money invested, would have been the IA UK Index Linked Gilt sector, which gained 8.2%. For reference, the IA China/Greater China sector returned 3.4% and the IA Standard Money Market sector a whopping 0.34%. You lost 6% in the IA North American sector, despite a 10.9% return here in Q1. Asset allocation has been “interesting” in recent times, to say the least.


The theme for Q1 was a reversal of the previous quarter generally and currencies were no exception. Despite a lack of resolution in Brexit discussions, sterling staged a phenomenal recovery in the quarter, though the trend faltered towards the end of the period.

Risky business

Can you have your cake and eat it? Here we search for funds with good risk characteristics and establish which funds offer the holy grail of low risk and high returns. For this purpose, a longer time period is required, so we look back over three years to the end of the quarter.

Measured to the end of Q1 2019, yet again no fund achieved the perfect mix of top of the sector three-year returns with bottom of the sector three-year volatility. Worthy of mention again is the Lazard MENA Fund, which achieved 2nd percentile returns and 99th percentile risk. 


In summary, we believe the performance numbers are – as always – well worth crunching to find trends, provide ideas, layer knowledge on how each fund performs and to generally provoke thought.

Of course, the analysis must be taken in context, and the qualitative work must be done to allow for fully informed judgments. We hope you found this review interesting. If you have any questions, contact us.

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