The majority of investment funds are failing to deliver above average returns consistently over three years and the number beating the average is declining, according to research from a fund manager.

According to BMO Global Asset Management’s Q3 2017 FundWatch survey, only 9.6 % (109) of the 1,129 funds of the 12 major market sectors delivered above median returns in each of the last three 12 month periods.

This compares to 11.5 % of funds at the end of Q2 2017. The most consistent sector on this measure was the IA UK Smaller Companies sector with 21.7 % of funds achieving this feat, while the IA UK Equity Income sector was the least consistent at 1.3 %.

The survey shows a smaller pool of funds were able to generate top quartile returns compared with Q2 2017, which is considerably lower than the historic range of between 2 and 5 %.

Of the 1,129 funds reviewed only nine (0.8 %) were able to consistently deliver top quartile returns over three years as at the end of Q3 2017. Seven of the 12 sectors failed to secure any top quartile funds, while the most accomplished sector, the IA Global Bond, secured 2.5% of its funds.

Kelly Prior, investment manager in BMO Global Asset Management’s Multi-Manager team, said: “Building on the previous quarter, the number of funds generating consistent returns continues to deteriorate.

“Over nine in 10 funds failed to consistently generate above average returns over a three year period, with vicious sector rotations and gyrating yield curves creating a lack of consistency from funds. Our survey shows that the last three years have rewarded the brave, although the investment backdrop is not an easy one to navigate as we live in curious times with volatility eerily absent.”

BMO says its survey also revealed:
• The best performing sector in Q3 2017 was the IA China / Greater China sector, gaining 8.3 %.
• The IA UK Index Linked Gilt sector was the laggard falling 0.6 % with the IA UK Gilt sector also losing ground retuning 0.6 %.
• The IA Smaller Companies sector was the strongest performer of the UK equity sectors rising 5.2 %, as risk assets continued to be favoured by investors.
• The IA UK Equity Income sector was bottom of the back of the pack rising 1.2 %.