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Financial Happenings Blog
Tuesday, September 04 2007

If you have read through a lot of the information on our website you wil soon gather that we do not support the theory that active managers can add significant value to the performance of investment portfolios for investors.  In fact we believe the opposite that active managers actually can cost you money.

As with all of the investment philosophy used at A Clear Direction Financial Planning we do not just idealistically follow theories rather we put these theories to the test through research and analysis of markets at work.  This is definitely the case when it comes to looking at the performance of actively managed funds.  Scott Francis has published an article in last Friday's edition of Alan Kohler's Eureka Report where he looked at the one and five year returns of some of the best known managed funds in the Australian market place.  Funds coming under the banners of the largest financial players in Australia - AMP, ANZ, Challenger, the Commonwealth Bank, Macquarie bank, National Australia Bank, Perpetual, St George, Suncorp-Metway and Westpac.

Scott concluded that despite the almost perfect conditions for 19 leading fund managers in the year to June 30, 2007, the outcomes for retail investors are hopelessly inadequate.

  • Over the five years to the June 30, 2007, only three of the 19 funds managed to beat the average market return.
  • In the year to June 30, only one managed to beat the average market return, of the ASX300 index.
  • The average one-year income from the sample of managed funds was 15.46% - about four times the sharemarket average. Because this income is taxable, it makes the funds very tax ineffective.
  • Over one year, the average managed fund in the survey underperformed the average market return by a whopping 3.56%. (Think about that in terms of an investor with a $100,000 fund holding and paying a fee of 2%. They paid $2000 to a fund manager to end up $3560 behind the average market return).

He finishes by saying that there are two clear conclusions in this survey. First, investors who look to managed funds to provide an above-market average return should take the time to look at the performance of managed funds as a whole (and then the returns from their individual holdings) to see whether this faith is justified. They will invariably be disappointed.

Second, the tax-effectiveness of managed funds is under question and the sooner all funds move (or are forced) to report after-tax returns the better. It is not hard and surely, if investors are paying fees of up to 2% a year they deserve to know how their funds have performed in terms of 'take home' returns. After all, that's all that matters.

The details contained in the article are well worth a read and can be found by clicking on the link that follows.  Full Article

Kind regards,

Scott Keefer

Posted by: Scott Keefer AT 07:21 am   |  Permalink   |  Email
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