Twenty-three funds in the Investment Association (IA) universe have failed to beat their respective indices in both up and down markets, according to data from FE Analytics.
Almost all the funds on the list that have been hit harder than their benchmarks in falling markets while struggling to capture the gains of their benchmarks in rising markets sit in the global and US sectors.
In recent years, US and global funds have had a harder time than their passive counterparts thanks to the strong returns of major global indices such as the S&P 500 and MSCI World.
Indeed, the S&P 500 has returned 81.96 per cent in the past five years, MSCI World is up 69.16 per cent and MSCI AC World has gained 67.04 per cent.
Below FE Trustnet looks at the funds that have not managed to rise in-line with their respective benchmarks in up markets, while losing more than their benchmarks in falling markets.
To do this, we first filtered the funds that have a five-year r-squared ratio of 0.7 or higher, which typically means a fund is closely linked to its benchmark.
Next, we filtered the funds that have a five-year upside capture ratio of 90 per cent or less and a downside capture ratio of 110 per cent or more. Please note, all five-year figures in this article are run to the end of June 2018.
The results were 17 funds that are benchmarked against a global index, 4 against an American index, and two others.
Upside and downside capture ratios of funds
Source: FE Analytics
First up are the global funds and the IA Global sector, of which three are run by Aberdeen Standard.
Aberdeen Global World Equity and Aberdeen World Equity are both benchmarked against the MSCI World and have behaved very similarly with a downside capture ratio of around 129 per cent and an upside capture ratio of over 81 per cent.
During the five years looked at, the MSCI World index has had 17 months where it was down and 43 months where it was up.
Looking at overall performance, the two funds have returned slightly over 42 per cent in the past five years, more than 15 percentage points less than the benchmark.
Aberdeen’s other global equity fund, Ethical World Equity, has a downside capture ratio of 124.14 per cent and an upside capture ratio of 77.69 per cent against the FTSE World index, while returning 43.08 per cent in total return over the five-year period.
The reason for the underperformance of the three funds can be attributed to their preference for emerging markets to developed markets between 2012-2015 and their underweight position in the US, which has performed particularly strongly in the past five years.
However, if you look at the performance of the funds over the past three years, they have all outperformed both the MSCI World and FTSE World benchmarks.
The biggest fund in the list from the IA Global sector is the £2.4bn M&G Global Themes fund, which is benchmarked against MSCI AC World.
Its five-year downside capture ratio is 117.03 per cent and its upside capture ratio is 82.05 per cent, while it has returned 47.38 per cent in total over the period.
The fund is underweight the US and the information technology sector, a sector which has been a strong performer in recent years.
Five other global funds made the list from the IA Global Equity Income sector including the £1.6bn Threadneedle Global Equity Income fund.
Upside and downside capture ratios of funds
Source: FE Analytics
Over the five years, the fund has a downside capture ratio of 111 per cent and an upside capture ratio of 84.28 per cent against the MSCI AC World index, which has had 18 negative periods and 42 positive periods.
The fund has gained 54.23 per cent in total over the five years, more than 10 percentage points less than the benchmark’s return of 67.04 per cent and currently yields 3.4 per cent.
The cumulative performance figure has been hampered by 2014, where the fund had a disappointing year and returned 3.32 per cent. However, since 2015, it has outperformed the MSCI AC World by roughly 10 percentage points.
The best-performing global fund featured on the list is GAM Multistock Global Equity Income, which is up 63.57 per cent over the five years, while MSCI World has gained 69.16 per cent.
The fund has a downside capture ratio of 111.04 per cent and an upside capture ratio of 89.02 per cent against the global index.
Finally, there are four American funds that have not managed to capitalise on their benchmarks’ gains while also losing out in falling periods.
Aberdeen North American Equity has a downside capture ratio of 113.03 per cent and an upside capture ratio of 87.78 per cent against the S&P 500.
The fund was the best performer in the list and underperformed the S&P 500 by less than 1 percentage point over five years despite an underweight to the information technology sector.
Upside and downside capture ratios of funds
Source: FE Analytics
The only American fund benchmarked against the mid-cap Russell 1000 index is Legg Mason ClearBridge Growth, which has a downside capture ratio of 115.76 per cent and an upside capture ratio of 84.56 per cent.
Looking at performance, the fund has returned 72.43 per cent over five years compared to the index’s 81.90 per cent gain.
Although it is benchmarked against a mid-cap index, the fund is overweight large-caps and includes some tech behemoths in its top holdings such as Microsoft, Alphabet, Apple and Amazon.