| Richard
Newell
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+64 (0)21 534 456
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As an investor, you may sometimes wonder
whether you have your money in the right fund or the right
market? You may hear stories of the top performing funds and
wonder why the ones you pick don’t do as well. It can
be a frustrating experience, and that is where the investment
adviser comes in to guide you towards the very best performing
funds. But who advises the financial adviser? The good ones
will take input from specialist researchers, who dig deep to
find out which fund managers can deliver on their promises.
Generally, an investment adviser selects funds after reviewing
past performance of a small number of funds, and then, in practice,
maintains a short list of his or her favourites. This is not
a system that is likely to deliver the best returns for the
client. In today’s high stakes investment markets, it
is unrealistic to expect any investor or adviser to have a
broad knowledge of the global fund opportunities. That is why
independent analysis, designed to highlight the very best managers
for a variety of investor needs, is so important.
A company dedicated to researching individual funds and assessing
those most like to produce consistently high returns can add
considerable value to your investment portfolio in a very short
space of time. Investment success is all about being in the
right place at the right time. This doesn’t happen by
chance. There is a much higher probability of success if your
decisions are supported by objective, detailed research.
The alternative is an over-reliance on statistical data about
fund performance and a tendency to look backwards rather than
forwards. The statement about past performance being no guide
is true. It is an indication of who are the best managers,
but it will not help you decide which funds will provide the
best returns in the market conditions that exist now.
Categorisation is another problem; without independent research
to support fund selection, the investor may not be getting
what he expects from a fund. The manager may be taking more
risk in the portfolio than is apparent from a cursory inspection.
Or the fund may not actually be invested in the market segment
chosen by the investor, highlighting the inaccuracy of fund
categorisation. At the same time, statistical analysis will
not show to what extent the manager is in control of the portfolio,
or, for example, how much of the performance was due to favourable
currency movement.
To give you an idea of how important this is, and taking a
period of more ‘normal’ growth as a guide, the
best global equity fund over a three year period
to the end of December 1999 had returned 288%. The average
fund returned 150%, the worst 52%. So even if you had invested
with the average performing fund, you would have been a happy
investor, but perhaps not so happy when you realised how much
you could have made.
Fund choice at the asset allocation level is nowadays not a
question of diversity across the globe, because so many of
the large markets are still highly correlated. It is more about
using the increasing mobility of capital and the visibility
of opportunities in new markets (e.g. China) that is the key
to making money. It is akin to stock picking at a market level.
On a global level, it is the ability to see markets that are
in a positive cycle and finding the manager to exploit the
opportunity.
I believe that this decade will be characterised by the hard
knocks taken by investors who remain faithful to the idea of
investing in major equity markets. In the same way that the
Japanese Nikkei index took seven years to fall from 40,000
to 20,000, with regular false starts along the way. A solution
to this equity trap is to free up your investments to focus
on those areas that will make you money going forward.
Richard Newell
April 2003
Copyright 2003 Richard Newell
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Copyright 2003-2009
Richard Newell. All rights reserved. |
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