The latest Columbia Threadneedle Investments Multi-Manager FundWatch survey for Q2 2022 shows unprecedented results, demonstrating the extreme rotations that markets have been through.

Faced with rising market volatility driven by the Ukraine war, combined with high inflation and the impact of central bank policies, a new survey by Columbia Threadneedle Investments shows that a record low number of funds delivered top quartile, as well as median returns, over a three-year period as of Q2 2022.

The survey shows that just four out of the 1153 funds analysed achieved top quartile returns over three years to the end of Q2 2022. The four funds were each from different IA sectors: Quilter Investors Sterling Diversified Bond fund, Matthews Asia Small Companies fund, Luxembourg Selection Active Solar fund and the Fidelity Japan fund, the firm said in a statement in London this week.

This is the lowest proportion of funds since the survey began in 2008 and it

follows the previous record low set in Q1 2022 at 0.45 per cent, the firm added.

The survey also found that even when the hurdle is lowered to above median returns in each of the last three 12-month periods, it remains challenging with another record low of just 58 of the 1,153 funds, compared with 68 funds in the last quarter.

Of the 12 main IA sectors, the IA UK Smaller Companies recorded the highest proportion of funds, at 10.4 per cent. This was followed by IA Asia Pacific ex-Japan sector with 8.8 per cent of funds, while the IA UK All Companies sector recorded the smallest proportion of funds, at 2.3 per cent, the firm added.

Kelly Prior, investment manager in the multi-manager people team at Columbia Threadneedle Investments, said: “The funds world is experiencing a challenging period, with macro factors and geopolitics creating an interesting environment for investment right now.”

“We launched the FundWatch survey in 2008 and since then we have analysed fund performance during some of the most significant and challenging market events for investors, including Covid, the global financial crisis and the emerging market debt crises,” she added.

“However, this quarter’s findings are unprecedented, demonstrating the extreme rotations that markets have been through in the last couple of years and how different flavours of investment have led markets at different times,” she stressed.

“While the data points make for hard reading, we believe the data does indicate that fund managers are holding their nerve and not trying to chase these very unusual markets. The only hiding place this year has been cash – and that is far from the natural hiding place of most active managers who will be excited by the opportunity that this current turmoil can offer for the long-term investor,” she explained.

“As we look ahead, it is interesting to see that there is no dominance of any one style or flavour of mandate in the consistency filter. The next big trend is up for grabs, but for now we may have to wear some volatility before the next pattern emerges,” she said.

Of the 52 IA sectors, the firm said that only seven made positive ground in the last quarter with increasing inflation and rising interest rates continuing to impact fund performance. At the bottom of the performance tables was the IA UK Index Linked sector which fell 20.2 per cent due to inflationary pressures and long duration being exceptionally sensitive to interest rate rises.

The IA technology and telecoms sectors were at the bottom of the pile losing 16.6 per cent, the firm added. On the flipside, due to the positive news about Covid restrictions reopening, the IA China/Greater China sector was at the top gaining 10.3 per cent, effectively cancelling out most of the 11.9 per cent fall from the first quarter of 2022.

All UK equity sectors fell in the second quarter with the IA UK All Companies sector down 8.3 per cent, and the IA UK Smaller Companies sector returning -13.2 per cent, the firm said. The IA UK Equity Income sector was by far the best home market equity sector again, falling 5.5 per cent.

The dollar rose again in the quarter with a rally of 8.4 per cent in the three months against sterling, the firm added. The Yen continued to suffer the most, however, due to its central banks’ lack of yield curve control and inactivity in interest rates.

FundWatch uses the Columbia Threadneedle Investments Multi-Manager team’s process to highlight the past quarter’s developments in the fund world. It is fact-based and uses performance analysis techniques which form part of the team’s investment process, the firm explained. All data is from Lipper for Investment Association sectors and is calculated in total return terms in sterling for periods ending 30 June 2022.