Investment Insights: March 2015

Hello and welcome to the March 2015 edition of Investment Insights

2015-03-31

Hello and welcome to this month’s edition of Investment Insights.
 
This month’s article is a piece from the New York Times with the title How Many Mutual Funds Routinely Rout the Market? Zero so you don’t really need to guess what the results were, however the article does have some excellent analysis. Specifically the article focuses on the research routinely conducted by Standard and Poors looking at which managers beat the market and which of them did it consistently over time.
 
“The Study included 2,862 broad, actively managed domestic stock mutual funds that were in operation for the 12 months through 2010. The S.&P. Dow Jones team winnowed the funds based on performance. It selected the 25 percent of funds with the best returns over those 12 months — and then asked how many of those funds actually remained in the top quarter in each of the four succeeding 12-month periods through March 2014.
 
The answer was remarkably low: two.”

 
What was even more interesting was the further analysis conducted which indicated that these two funds that did beat their index, more than likely did so by luck rather than skill!.  
 
“Looking at the numbers, you can’t tell whether there is skill involved in what they do or whether their performance is just a matter of luck,” Mr. Loggie said. “I believe that many of them do have skill. But even if they do have it, based on how they’ve done in the past you really can’t predict how they will perform in the future.”
 
Daniel Minihan, our Director of Wealth Management, has written a number of pieces focusing on this topic over the years with this one from October noting that almost 75% of active managers failed to beat the index, along with this piece back in February detailing how when you add in the survivorship effect (that is funds that were so bad they went out of business) the odds of you picking a manager that can beat the market over 10 years reduces to 15%. We are sure that you will agree 15% is a very low bar, but what you also need to consider is that these 15% were different each year so you would need to be able to accurately switch from last year’s best performer to this year’s best performer every year for 10 years……an all but impossible task.
 
So what is our advice?. Focus on what you can control, minimise your investment fees and let the market do its work which over the long term will provide better results than the ones above.

If you would like to discuss your portfolio or any aspect of your financial affairs, click on the links below to contact one of our advisers today.

Daniel Minihan
David Foord
Matthew Baum

If you would like to read more regular posts you can follow us at http://www.thehyperioneffect.com or via your favourite social media platform: