The funds for consistent returns – Update February 2022

I'm fundamentally opposed to buying and holding actively managed funds for the long-term as you are more likely to 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 that 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 time frame can give a skewed result.

So instead I decided to analyse the performance of every unit trust out there (over 1,200 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

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 21 funds (out of 1,200 unit trusts) which have shown a consistency of return over the medium to long-term (in various market conditions), yet doing so without taking unnecessary risk. The funds are shown below.

In this update of the most 'consistent funds' research, I have highlighted in blue those funds that retained their place in the list from the previous update. There are also 2 funds within the list that currently appear in either the BFBS or BOTB lists and these are highlighted in bold.

Name	Sector	ISIN Code	1 month return %	3 month %	6 month return %	Max weekly fall in the last 6 months	Ongoing charge
BlackRock Continental European	Europe Excluding UK	GB00B4VY9893	-9.32	-15.88	-10.76	-18.18	0.92
IFSL Bowland	Flexible Investment	GB0008265307	-5.14	-5.79	-6.37	-8.77	0.79
Margetts MGTS Sentinel Enterprise	Flexible Investment	GB00B7HJSF95	-5.66	-10.41	-3.7	-13.58	0.81
Artemis Global Select	Global	GB00B568S201	-3.19	-4.32	-0.46	-8.9	0.89
Vanguard FTSE Developed World ex-UK Equity Index	Global	GB00B59G4Q73	-3.52	-5.68	1.27	-7.56	0.14
Fidelity Japan	Japan	GB00B882N041	-0.73	-3.3	3.19	-7.03	0.8
L&G Mixed Investment 0-35%	Mixed Investment 0-35% Shares	GB00B8KRCM23	-2.24	-3.29	-2.61	-3.24	0.44
AXA Global Sustainable Distribution	Mixed Investment 20-60% Shares	GB0008309063	-2.55	-4.07	0.43	-5.55	0.77
COIF Charities Investment	Mixed Investment 40-85% Shares	GB0001877652	-3.15	-2.21	1.46	-8.04
LF Waverton Portfolio	Mixed Investment 40-85% Shares	GB00B1RDGP55	-3.22	-4.71	2.4	-7.76	0.85
iShares North American Equity Index (UK)	North America	GB00B7QK1Y37	-3.77	-5.14	3.73	-9.19	0.07
Royal London Corporate Bond	Sterling Corporate Bond	GB00B87FJ401	-3.5	-4.75	-5.33	-3.43	0.56
Schroder Sterling Corporate Bond	Sterling Corporate Bond	GB0009379370	-3.85	-5.28	-6.08	-4.15	0.59
Baillie Gifford Diversified Growth	Targeted Absolute Return	GB00BYQCYV62	-3.08	-3.67	-2.03	-5.5	0.75
BlackRock European Absolute Alpha	Targeted Absolute Return	GB00B4Y62W78	-2.72	-3.57	-0.72	-5.37	0.91
Allianz UK Listed Opportunities	UK All Companies	GB00B8BB9445	0.21	2.29	9.43	-3.06	0.84
BlackRock Charities UK Equity	UK All Companies	GB00BFBFWM47	-0.96	-0.04	2.18	-3.39	0
L&G UK Property	UK Direct Property	GB00BK35DV33	1.15	6.98	10.92	-0.08	0.75
Allianz UK Listed Equity Income	UK Equity Income	GB00B82ZGC20	1.38	4.1	9.4	-2.47	0.65
Royal London Index Linked	UK Index Linked Gilts	GB00B8DDWW71	-1.8	-7.01	-5.3	-8.13	0.36
Liontrust UK Smaller Companies	UK Smaller Companies	GB00B57TMD12	-8.13	-9.07	-8.12	-12.95	1.33

 

The material in any email, the MonetotheMasses.com website, associated pages / channels / accounts and any other correspondence are for general information only and do not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation. See full Terms & Conditions , Privacy Policy and Disclaimer.

Neither MoneytotheMasses.com/80-20 Investor nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

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.

Information provided by MoneytotheMasses.com/80-20 Investor is for general information only and not intended to be relied upon by readers in making (or not making) specific investment decisions.

Appropriate independent advice should be obtained before making any such decisions. Leadenhall Learning (owner of MoneytotheMasses.com/80-20 Investor) and its staff do not accept liability for any loss suffered by readers as a result of any such decisions.

The tables and graphs are derived from data supplied by Trustnet. All rights Reserved.