The latest FundWatch survey from multi-manager specialist Thames River Multi-Capital (“TRMC”) demonstrates an improvement in the consistency of fund performance for the second quarter in a row, despite some of the worst market conditions since the height of the financial crisis in 2008.

 

The TRMC Consistency Ratio measures the proportion of funds that have performed consistently above average in each of the last three 12-month periods, in addition to those which are consistently top quartile over the same period.    In the 12 main sectors researched, FundWatch identified that of the 1,230 funds with three-year track records, 35 have been top quartile in each of the last three 12-month periods. This rise from 2.68% to 2.8% is a marginal improvement from Q2 2011, when 34 of 1268 funds achieved the same performance consistency. Nevertheless, this shows an improvement during some of the most volatile market conditions in recent history.

 

Of particular interest is that, when lowering the hurdle rate to simply above median returns in each of the last three 12 month periods, 177 of the 1230 funds delivered above median returns. This means the ratio rose more materially than the top quartile ratio, moving from 13.0% last quarter to 14.4% this time. Importantly, all 12 main IMA sectors had at least some funds meeting this less demanding consistency hurdle.

 

Rob Burdett, Co-Head of Thames River Multi-Capital, commented: “This is our fifteenth survey and, as the three years for the study this quarter now encompasses the majority of the ‘credit crunch’ era, managers appear to have dealt better with this volatile period than one would have expected in terms of regular above average returns at least. Perhaps the bitter experience of trying to successfully navigate their way through choppy waters of persistent bad news and irregular markets has seen many fund managers find a way of improving performance amidst the ‘new normal’. This is no mean feat when you consider that the backdrop is in constant motion and this has quite frankly made life for fund managers, and investors, very difficult.”

 

The most consistent sectors for top quartile returns were the Emerging Markets (a small sector where two Aberdeen funds delivered), UK Smaller Companies (3 funds from Investec, Marlborough and Amati) and, surprisingly, given political and economic issues in the region, Europe ex-UK sectors (5 funds including Liontrust European Growth, BlackRock European Dynamic and Jupiter European). Europe ex-UK was also one of the most consistent sectors under the less demanding above average hurdle rate, alongside Global Equities, with the least consistent being Asia ex-Japan and Japan.

 

Gary Potter, Co-Head of Thames River Multi-Capital, added: ’Asia has been the hardest sector for managers to deliver consistent returns on both levels. This reflects the wide variation of returns from the region’s many different countries. However over the three years average total returns of almost 45% have been amongst the best of all the sectors, and almost treble the IMA Global average, so it has been well worth stomaching the volatility.’

 

Turning to whether any funds achieved the holy grail of low risk and high returns, looking over three years to the end of the quarter, it is perhaps no surprise to find that no funds achieved the perfect mix of top of the sector 3-year returns with bottom of the sector 3-year volatility. Nevertheless, First State Asia Pacific Sustainability Fund, Threadneedle European Select Fund and Trojan Income Fund all achieved lowest in sector risk alongside top decile returns.

 

“Fund managers continue to face a very difficult economic environment as 2011 draws to a close, with many commentators expecting worse to come in 2012. Against this backdrop, our view is that a multi-asset approach across markets, asset classes and managers remains crucial to providing diversification and harnessing the best of performance across the asset management universe,” Burdett concluded.