Hedge Clippings | 24 March 2023
What defines the best managed fund?
This week we thought we'd give politics and politicians a rest, as well as tax and the superannuation system. We're not even going to elaborate on the frailty or otherwise of the US or global banking system, except to say "who ever thought the Swiss would run into trouble?"
Instead, we're looking at the performance of equity markets, and managed funds - and specifically the best performing ones, over varying time frames. We also refer to an excellent article (see link) by Romano Sala Tenna, Portfolio Manager at Katana Asset Management in Graham Hand's excellent "First Links" newsletter. The essence of the article is that time, and patience, are the keys to successful long term investing in the equity market. While there may be some volatility along the way, Romano clearly shows that the market's direction (given time) is always upwards. Which of course begs the question why so many investors try to "punt" the market, with highly variable results.
Maybe it is simply the love of the punt, or possibly one, the other, or both of the two most common flaws of investing; greed and fear. As Romano points out, the sharpest fall (3 months) in the history of the ASX was in early 2020, thanks to COVID. Those who sold in February or March 2020 missed out on one of the strongest rallies which followed. He also points out that the market has averaged a return of 10.8% over the last 147 years. That may be longer than most fund managers propose, but you probably get the point. Romano's message is to invest for the long term and stay patient.
As the chart below shows, on a rolling basis if you had invested in the market for any 8 year period since 1875, you won't have experienced a negative return.
Some might wonder why, given Fund Monitors' focus is on managed funds, we're looking at investing directly in the market. Quite simply, choosing a managed fund is not so easy investing in the index. Managed funds come in all shapes and sizes, and performance varies between them. Performance also varies over time, and we would agree that when analysing the performance of funds one has to look at performance over the longer term. However, some of the best performing Australian Long Only funds over one year don't always back it up, year after year.
The top 10 performing funds over the longer term however (7 years) don't always appear in the top 10 over 5, 3, and 1 year. Careful analysis shows consistency (at least in the top 10 list) is difficult to achieve. For the record, Romano's Katana Australian Equity Fund makes the Top 10 list in all four time frames - 1, 3, 5, and 7 years. Rob Gregory's Glenmore Asset Management doesn't have a 7 year track record but makes the top 10 over 5, 3, and 1 year. DMX Capital Partners and Anacacia's Wattle Fund appear in the top 10 tables 3 times, each over 7, 5, and 3 years.
Analysis of managed funds isn't as simple as just selecting the top performing funds. Join our webinar "Making the Most of Fund Monitor's Data" next week, either on Tuesday 28th at 11:30 in the morning, or alternatively on Thursday 30th at 4:00 in the afternoon (both AEST) and we'll give you a site tour and tips on how to use the website to compare and track over 700 funds.
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