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 1,088 funds with a 3-year track record.

• The BMO MM Consistency Ratio for top quartile returns over three years (to the end of Q2 2019) rose to 2.3% (2.2% last time) with 25 of the 1,088 funds achieving this feat. This ratio was within the usual historic range of between 2-5%.
• The IA £ Corporate Bond sector was yet again the most consistent for top quartile returns with 7.7% of funds making the cut. It was followed by the IA Emerging Markets and IA North American sectors, which had 3.5% and 3.4% of funds making the grade respectively. The IA Global Bond sector was the only sector not 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 152 of the 1,088 funds delivering above median returns consistently. This less demanding ratio rose to 14%, from 11.1% last quarter.
• All 12 main IA sectors met the less demanding above-median consistency hurdle. The most consistent sector on this measure was the IA North American sector with 23.9% of funds performing above median for 3 consecutive years. The IA £ Corporate Bond and IA Japan sectors were the next best with 21.8% and 17.8% respectively achieving the target, with the IA Europe ex UK sector the least consistent with 8.9% of funds achieving the above-median consistency hurdle.

BMO MM comment

We live in interesting times. Bond yields continue to fall as the outlook for interest rates suggests an increasingly accommodative stance from the world’s central banks as the fortunes of global economies look to be lessening. At the same time, equities continue to rise as the cost of corporate funding remains low.

• Quality growth equity funds and long duration (more sensitive to movements in interest rates) fixed income offerings continue to dominate the consistency tables, as the comfort blanket of central bank policy that keeps investors at the party, remains in place. As I write, 35 global PMI (Purchasing Managers’ Index) surveys have been reported. These are the recognised bellwethers for the health of the economy. 27 have dropped suggesting slowing economies month-on-month, with 19 of those reflecting economies actually shrinking. Granted, stock markets are not economies, but the ability of companies to grow earnings is priced in to many equity markets, and this in particular needs to be thoroughly checked at this point in the cycle.