Every now and then I like to build spread sheets and interrogate performance data. This weekend I decided to look at the UK Equity Income sector. Below are my musings. (attached is the spreadsheet).
Using information sourced from Financial Express with income reinvested and looking at 5-year data using 31 October 2021 as the cut-off date, the UK Equity Income sector threw up the following insights. (We obviously cannot take any responsibility for the underlying data from Financial Express).
I know there are lots of data analysts out there, and there are lots of ways to skin the cat so to speak, but when I say “average” I mean a simple average calculation in Microsoft Excel of all the funds in the sector as of the date in question. For example, as at 31 October 2021, there were 93 funds with 12 a twelve month track record, but in the twelve month to 31 October 2016 there were only 78. Therefore, the “average” will be from the 93 and the 78 respectively. The spreadsheet splits the returns into quartiles, so when we say “above average” I’ve simply sorted all the funds in the first and second quartile.
I do like the line of “lies, damned lies and statistics” - there are plenty of ways to make fund performance look good, bad or indifferent. By looking at the plethora of numbers below, you’ll no doubt be confused if you use it as a guide to pick tomorrow’s winners and when you look at those statistics, it is not surprising that many decide to only invest in passive funds because trying to time entrance and exit in funds to maximise returns seems to be a loser’s game…. This piece does not take any subjective considerations into account; will pay no attention to corporate action, fund manager change, fund strategy changes or anything like that. The numbers are total return so no thought will be used when looking at how dividends impact the numbers for instance. This is a purely unemotional, objective way of slicing and dicing of fund numbers. This piece does not suggest investing in this sector is good or bad, and as we all know, the past is no guarantee of the future.
In essence, the spreadsheet contains 6 columns:
- 5 years to 31 October 2021
- 1 Year – 31 October 2020 to 31 October 2021 (1)
- 1 year - 31 October 2019 to 31 October 2020 (2)
- 1 year - 31 October 2018 to 31 October 2019 (3)
- 1 year - 31 October 2017 to 31 October 2018 (4)
- 1 year - 31 October 2016 to 31 October 2017 (5)
Over the 5 years in total, the average return for the sector was 24.61%. All bar two funds delivered a positive return:
- The highest return was 65.98% and the lowest -82.27% for the five years in total. A range of almost 150% between best fund and worst fund is very wide indeed.
- Three of the five periods delivered positive returns in periods (1) (3) and (5) with average returns of 37.31%, 4.87% and 13.04% respectively.
- The two negative years (2) (4) showed average losses of -20.39% and -3.65%.
Over the last five discrete twelve-month time periods, only two funds delivered first or second quartile returns over EACH of the periods (1 to 5 above) – one delivering first quartile returns over the five-year review period, and one delivering third quartile, although the returns of that fund were better than the average (25.05% v 24.61%). High degrees of consistency are hard to find!
At the other end of the scale, three funds have delivered either third or fourth quartile numbers in each of the five-year periods in the review – all delivering fourth quartile returns over the past cumulative five-year time period. It could be argued that these three funds are also considered “consistent” too.
There are twenty-one funds that have delivered above average returns over the most recent year (1) that have also provided above average returns over the past 5 years. Correspondingly, the same number of funds were below average over the last 12 months, but above average over the last five years.
Flipping that around, nineteen funds have given their investors third or fourth quartile returns over both the last 12 months and the last five years whereas twenty-two have been below average over the last five years, but above average numbers in the most recent twelve-month time frame.
In the twelve months to 31 October 2020 (when markets were suffering hard from the covid-induced market panic), twenty-three funds were fourth quartile. Twelve of those twenty-three were first quartile in the most recent twelve-month time period. Only four continued to be in the bottom quartile. Of the first quartile funds in the twelve months to 31 October 2020 (of which only two returned positive numbers) only one was first quartile in the twelve months to 31 October 2021. Eleven stayed fourth quartile. When you add the third quartile funds into this, the number rises to twenty.
Some other stats:
- Number of funds above average in Period (1): 47
- Number of funds above average in Period (1) and (2): 12
- Number of funds above average in Period (1) (2) and (3): 9
- Number of funds above average in Period (1) (2) (3) and (4): 4
- Number of funds above average in Period (1) (2) (3) (4) and (5): 2
Above average over the 5 Year total, but:
- Number of funds with 1 period in the 4th Quartile: 16
- Number of funds with 2 periods in the 4th Quartile: 5
- Number of funds with 3 periods in the 4th Quartile: 1
- Number of funds with 4 periods in the 4th Quartile: 0
This article and attached spreadsheet show that consistency IS difficult to find. It also shows that good performance can be achieved in short bursts which can still positively impact long-term returns. It also shows that a fund can have periods of underperformance and still deliver outperformance over the longer-term. Patience can be very rewarding.