I'm fundamentally opposed to buying and holding funds for the long-term as you can make more money by regularly reviewing them.
However, I understand that there are times when you might not want to or can't switch your funds as often as you might want. For example, you may have a pension scheme which offers a limited choice of funds or restricts the number of switches you can perform. Or it may be that you like to have a core stable selection of funds in your portfolio around which you more actively invest to boost returns.
You will probably already be familiar with my Perfect ISA Portfolio which focussed on the perfect asset mix for consistent returns. However a few years ago I carried out a piece of research identifying funds for consistent returns. In other words, are there any funds out there that seem to consistently outperform their peers which aren't just focused on capital preservation? But taking this one step further are there any such funds which are also good momentum plays, as identified by our 80-20 Investor algorithm? So I've gone back and refreshed the research and below I describe how I did just that.
Long-term outperformance screen
It's a fact that 90% of fund managers fail to beat the market over the long term which has been shown by numerous pieces of research. Yet there are a few that have. However, judging overperformance or underperformance based on an arbitrary timeframe can give a skewed result.
So instead I decided to analyse the performance of every unit trust out there (over 2,000 of them) versus each other over multiple time frames to produce a shortlist. I only shortlisted those funds that outperformed the average of their peer group (sector) over the following time periods
- 1 year
- 3 years
- 5 years
- 10 years (to include data pre-financial crisis)
Then to include an element of consistency the funds also had to show a similar level of outperformance in each of the last 5 years.
I also wanted to make sure that they were genuinely beating the market rather than simply doing better than their dud peers. So I also added a few screens which give an indication of fund manager skill. This would limit the likelihood that a fund manager had simply managed any outperformance by taking excessive risks in a rising market. These additional screens were namely:
Alpha
Alpha is a figure which measures a manager’s apparent skill at picking winning investments versus their benchmark. Alpha is the excess return versus the return of a fund’s benchmark (i.e the market). So a fund with a positive alpha indicates that the fund manager has outperformed through skill. While a negative alpha figure would indicate underperformance.
Sharpe ratio
The sharpe ratio is not a widely known statistic yet it indicates how much extra return a fund manager has achieved for the increased risk they have taken. There is nothing wrong with fund managers taking calculated investment risks if they result in additional returns for investors. So the higher a fund’s sharpe ratio the better.
Maximum Drawdown
Finally, I analysed how the funds had performed over the last 3 years and what the maximum fall during the period was for each fund. I then only included those with the lowest drawdowns versus their peers. 80-20 Investor tables include the drawdown figure (Max Fall) as it is useful but not published widely.
80-20 Investor algorithm screen
The above screening left 20 funds (out of 2,200 funds) which have shown a consistency of return over the medium to long-term (in various market conditions), yet doing so without taking unnecessary risk.
These funds are shown below:
| Name | Sector | ISIN Code | 1 month return | 3 month return | 6 month return | Max weekly fall in the last 6 months | Ongoing charge |
| M&G Fund of Investment Trust Shares | Flexible Investment | GB0031288680 | -1.67 | -6.78 | -8.08 | -9.06 | 1.2 |
| Lazard Managed Balanced | Mixed Investment 40-85% Shares | GB00B3DVTR01 | -2.02 | -5.71 | -6.6 | -8.18 | 0.88 |
| BM Brooks Macdonald Cautious Growth | Mixed Investment 20-60% Shares | GB00B054QH55 | -1.2 | -3.71 | -3.71 | -5.1 | 1.17 |
| Sarasin Income & Reserves | Mixed Investment 0-35% Shares | GB00BYZJNC29 | 0.16 | -0.37 | -0.42 | -2.77 | 0.81 |
| UBS Global Emerging Markets Equity | Global Emerging Markets | GB00B7L34154 | 0.63 | -0.34 | -7.23 | -12.37 | 0.95 |
| Baillie Gifford International | Global | GB0005941272 | -1.8 | -7.95 | -8.7 | -12.39 | 0.6 |
| BNY Mellon Long Term Global Equity | Global | GB00B81VNZ37 | -1.63 | -4.54 | 0.32 | -9.27 | 0.95 |
| Fidelity Global Focus | Global | GB00B3RDH349 | -3.41 | -8.21 | -8.33 | -11.3 | 0.93 |
| Royal London Ethical Bond | Sterling Strategic Bond | GB00B8K6PK81 | 0 | -0.37 | -0.67 | -1.85 | 0.54 |
| Royal London Corporate Bond | Sterling Corporate Bond | GB00B87FJ401 | -0.07 | -0.96 | -1.25 | -2.64 | 0.53 |
| Baillie Gifford High Yield Bond | Sterling High Yield | GB0030816713 | -1.53 | -2.33 | -1.93 | -3.32 | 0.38 |
| Stewart Investors Asia Pacific Leaders | Specialist | GB0033874768 | 2.7 | -0.53 | 1.19 | -10.65 | 0.89 |
| Stewart Investors Asia Pacific Sustainability | Specialist | GB00B0TY6V50 | 4.58 | 2.21 | 2.01 | -10.6 | 0.98 |
| BlackRock Invest Mgrs UK Ltd Charishare Common Invest | UK All Companies | GB0001877215 | -3.5 | -8 | -11.9 | -11.8 | 0 |
| Franklin UK Rising Dividends | UK All Companies | GB00B5MJ5601 | -3.41 | -7.18 | -9.76 | -9.55 | 0.55 |
| Liontrust Special Situations | UK All Companies | GB00B57H4F11 | -3.66 | -8.7 | -8.39 | -8.51 | 0.87 |
| Liontrust UK Growth | UK All Companies | GB00B56BDS09 | -4.45 | -9.3 | -10.99 | -10.29 | 0.91 |
| MFM Bowland | UK All Companies | GB0008265307 | -5.1 | -12.25 | -9.89 | -10.86 | 0.84 |
| Liontrust UK Smaller Companies | UK Smaller Companies | GB00B57TMD12 | -5.77 | -16.73 | -11.19 | -15.03 | 1.4 |
| TB TB Amati UK Smaller Companies | UK Smaller Companies | GB00B2NG4R39 | -6.5 | -15.68 | -16.91 | -16.38 | 0.94 |
In this update of the most 'consistent funds' research, I have highlighted in green those funds that retained their place in the list from the previous update.
To see if the above funds have momentum you can simply check whether they appear in the latest 80-20 Best of the Best Selection or the Best Funds by Sector tables. Right now, none of them do but that is subject to change whenever the BOTB and BFBS tables are updated.
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Funds invest in shares, bonds, and other financial instruments and are by their nature speculative and can be volatile. You should never invest more than you can safely afford to lose. The value of your investment can go down as well as up so you may get back less than you originally invested.
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The tables and graphs are derived from data supplied by Trustnet. All rights Reserved.
