Consistency is the "Holy Grail"

New research by F&C's multi-manager team has revealed what a rare but nevertheless valuable quality consistency of performance is among retail funds.

The team analysed some 16 IMA fund sectors to identify how many funds in each have managed to achieve median or better performance in each of the last five calendar years. The startling results show that only a handful of fund managers beat their peers, let alone their respective market indices, in each of the last five years.

For example, among the largest group of funds - the 245 strong IMA UK All Companies sector - only 12 funds, representing 4.9% of the universe, managed to deliver fiftieth percentile or better in 2003, 2004, 2005, 2006 and 2007. Notably, in the Japan and Global Bonds sectors not a single fund managed to deliver median or better performance in each of the last five years while in both the North American and Global Emerging Markets sectors just one fund managed to stay ahead of the pack for five discrete years.

One of the sectors where consistent funds have been most prevalent according to the research has been the influential Equity Income sector, widely regarded as the champions league for some of the UK's star fund managers such as F&C's Ted Scott, Adrian Frost of Artemis, Jupiter's Tony Nutt and Neil Woodford of INVESCO Perpetual. Here, eight funds beat the median for five years on the trot, two of which are managed by the same individual and a further two of which have experienced changes of fund managers during the period under scrutiny.

"A handful of extremely capable fund managers have demonstrated their ability to consistently perform well across a range of market conditions. Yet most funds are not able to deliver either because manager turnover disrupts long term performance records or, more commonly, because investment styles come in and out of fashion with changes in the market cycle. Even some of the biggest stars in the industry will periodically have years when their investment methodology is not in vogue. Ironically therefore, consistency of performance may require greater adaptability of investment style across long periods of time," said Richard Philbin, head of funds of funds at F&C.

Philbin and colleague Dean Cheeseman, who manage F&C's around £1 billion of monies across a range of multi-manager funds, rate consistency as the core attribute they seek from a fund manager.

Cheeseman said: "There is a natural tendency for retail investors to focus their attention on the funds that happen to be currently topping the performance league tables. However, funds at the very top - or very bottom - of the performance charts at any given time are often 'shooting stars' which have a strong style bias or have taken a big bets. In many cases the performance position can reverse as markets change."

"In fact statistically," added Philbin, "a happier hunting ground for your core holdings should be those fund managers who deliver a solid, regular outperformance. It's a case of a little and often. This doesn't mean you should avoid mavericks altogether but you should either use such funds as satellite positions around the edges of your portfolio or make sure that if you are going to invest in a fund with a very strong style bias, such as a value driven approach, you should consider offsetting this with another manager who has a record of being strong in a different market environment. Over time this balanced team approach should enable you to get a more consistent level of performance."