Consumer Article – International Equity Funds
The latest Consumer magazine continues the review of historical performances [last 10 years] of managed funds. Pick an
unhappy story, make some inaccurate comparatives and suddenly you have a revelation.
For investors this ‘analysis’ is worse than useless – it is misleading. The survey is merely an naïve extrapolation of
past trends.
As with the Consumer’s prior similar articles on this topic we find little of news or usefulness in that the historical
returns represent past events while logical investors will be more interested in the future.
The article provides the ‘insight’ that some equity funds beat the market, some were around market performances and some
were below. Hmmm. The market’s returns – being the average, will naturally fall between the better and weaker
performers.
And that is why research groups exist to point the better informed investor towards those managers who are likely to
perform better than the peers and away from those who are less so. Just like any other industry there are the superior
and inferior product offerings – the average doesn’t matter because nobody actually buys it.
We are of course very pleased that the top performer over the ten year time frame has been the Fundsource International
equity fund of the year for the last 2 years. And unlike Consumer, we did recommend this fund for investment back in
1994 – a bit more useful than Consumer telling us it’s a good fund after the event.
Which goes to the heart of the issue. Consumer is trying to tell it’s readers what happened yesterday is very important
for tomorrow.
Maybe when analysing toasters but unfortunately capital markets have a habit of doing the unexpected and sometimes the
opposite of the past. That’s why Fundsource’s research process is forward NOT backward looking.
Developing a forward looking perspective on fund performance unfortunately is not as simple as merely recording past
results and fund fees. Formulas for success in funds management endeavours not only take time and expertise to
understand but also to find within the diversity of groups Fundsource researches. For the past 20 years Fundsource has
had a research team dedicated to such work.
Consumer also points out that over the past 10 years equity investing has done worse than lower risk cash investing –
therefore stay in cash in the future. Longer term and more comprehensive research would tell you that such a strategy
has a very low likelihood of success.
Not only have equities outperformed cash over the vast majority of 10 year time frames in the last 100 years, this
probability improves further in the time bands after equities have done poorly. As such, I’m putting my money on
equities beating cash in the next 10 years.
In entering the financial advice game Consumer implies that they are providing the investing public with new and
meaningful research. As a full-time fund researchers for the last 12 years, Fundsource understandably disputes this. Any
professional independent financial adviser should have access to fund research which dwarves Consumer’s efforts.
The key for investors is access to that research. Amongst the questions investors should ask a financial adviser – Do
you get 3rd party investment research? If not – then find one who does.
However, if people choose to invest DIY or through a tied salesman, as clearly many do, they can anticipate outcomes
possibly below the best available – but that’s the consumer’s choice and with that goes the responsibility for making
possibly a suboptimal decision.
All the survey tells Fundsource, is that many investors have made poorly informed decisions. This has led to investing
in funds that we would not invest in. Time those investors took responsibility to think smarter before committing their
hard earned savings.
ENDS