Fund Monitors Pty Ltd
© Copyright 2024
Printed: 29 February 2024 2:12 AM


28 Oct 2022 - Hedge Clippings |28 October 2022



Hedge Clippings | Friday, 28 October 2022


When you're in a hole, stop digging!

There's an old investment adage that goes along the lines of "let your winners run, and cut your losses early". However most fund managers have a stated mandate or strategy, so it's not quite as easy as that, particularly when there's an underlying shift in economic conditions, market direction, or style.

While an individual investor - assuming they have the knowledge or good advice - can adjust more easily, such as by changing sector and stock selections, buying option protection, or moving to cash, (although in truth, many don't - until it's too late) that's easier said than done - without the benefit of hindsight. For many fund managers, while they may have the knowledge or foresight, they are also constrained by the mandate included in the fund's offer documents.

They can mitigate risk to a certain degree by retaining or buying defensive stocks at the expense of those with economic or sector headwinds, but unless they're long/short, have the ability to de-risk through options and derivatives, or have a wider mandate, there's less flexibility available.

This creates issues for investors in those funds as well. Almost all offer documents will indicate that an investment in the fund should be considered over 5 or 7 years to ride out both performance variations and changes to the underlying economic and market conditions. So do you stick with the funds you have, or adjust allocations to meet the market?

The answer to the above dilemma will vary according to individual circumstances, including the level of diversification in an existing portfolio, a view on the ever changing economic outlook, and each individual investor's risk profile. What makes it difficult at the present time is the following broad statistics:

Over 12 months to the end of September:

  • Only one out of 15 sector/peer groups in the database (Fixed Income - Debt) provided a positive 12 month return;
  • Of the remaining 14 Peer Groups, the average 12 month return ranged from -0.08% (Infrastructure) through to the worst, Global Equity Mid/Small Cap at -26.02%.
  • Yet over 24 months to September, only 3 Peer groups were in negative territory on an annualised basis, including Fixed Income - Bonds at -2.65%, while Alternatives topped the 24 month returns at 15.45% per annum.

If we wind the clock back 12 months, how times have changed:

  • In the 12 months to September 2021, ALL 15 Peer Groups were in positive territory, ranging from Alternatives, which returned +37.72% (helped by Crypto) through to Fixed Income - Bonds at +3.51%
  • Over 24 months to September, again all Peer Groups were in positive territory, with the top performer being Global Equity Mid/Small Cap at 20.07% p.a. (and also returning 33.05% over 1 year, and 15.66% over 3 years).

So in the space of 12 months, the best performing sector/peer group has fallen from the top to the bottom performer. Talk about rooster to feather duster!

Statistics of course can prove or disprove anything, depending on what you want other people to believe. Within each of the Peer Groups the individual fund's performances also vary dramatically. What however is the lesson?

Obviously individual fund selection matters, as can asset allocation, and in the above instance, peer group selection. But given those variations and fluctuations, plus a changing global economy, the one over-riding message is diversification. With appropriate diversification, and an understanding of one's risk tolerance, a portfolio should be able to deliver through the cycle.

Fund Monitors' Peer Group Comparison and Analysis is available here.

New Funds on

Investment Perspectives: A closer look at US housing | Quay Global Investors

10k Words - October Edition | Equitable Investors

China's deflating property market threatens wider economic trouble | Magellan Asset Management

September 2022 Performance News

DS Capital Growth Fund

Delft Partners Global High Conviction Strategy

PURE Resources Fund

Digital Asset Fund (Digital Opportunities Class)

Skerryvore Global Emerging Markets All-Cap Equity Fund

PURE Income and Growth Fund

Insync Global Capital Aware Fund

Bennelong Concentrated Australian Equities Fund

If you'd like to receive Hedge Clippings direct to your inbox each Friday



Australian Fund Monitors Pty Ltd
A.C.N. 122 226 724
AFSL 324476
Email: [email protected]