Understanding Fund Performance
Sunday 18 April 2004
Be careful when you look at a fund's track record. It doesn't mean you'll earn good future returns.
The events of the past year or two have reminded investors that the small print in managed fund advertisements is all too true: Past performance is no guarantee of future returns.
That poses a big problem for managed fund investors. After all, most of us begin our se
By The Landlordarch for good funds by checking the fund's past records. Is that information really useless? If so, how should we go about choosing funds?
Answering those questions requires a clear understanding of why a fund's past performance might tell you little about its prospects.
Too much cash
For starters, some funds become victims of their own success. When a fund out-gains the market by a wide margin, investors quickly learn about its success, and pour their cash into the fund in hopes of sharing in its future gains.
That flood of cash can overwhelm even the strongest management team, who must find more shares to absorb all of it. The problem is especially troublesome for fund managers who buy small and medium capitalisation company shares. Adding too much cash to their favourite shares would quickly inflate the cost of the shares, and ultimately hurt the fund's performance.
Read More - Opens in a new window
Commenting is closed
It’s full steam ahead for the Stevenson Group’s $800 million, 361-hectare industrial and residential development in South Auckland – despite the uncertainties of the post-Covid-19 era.
The Reserve Bank says the commercial property sector is vulnerable to the Covid-19 crisis. But PMG Funds' chief executive believes that while there’ll be short-term pain, the biggest long-term impact will be structural change.
Mortgage lending fell to its lowest level on record last month as the property market ground to a halt during the Covid-19 lockdown.