fund factsheets

waltzer

Can anyone help? I'm working my way through the terminology used in fund factsheets. I've been able to get a basic understanding about practically everything except one concept...cumulative performance. As I understand it discrete is the average gain/loss over a discrete time period and is easy to comprehend. However, cumulative...how does it work and how do you interpret it? Graphs over time period show cumulative but you need to also look at discrete periods in case there have been some unusual periods of growth/loss that might skew the cumulative results. Is that correct? I would imagine cumulative is a running total (rather than average) over and up to a point in time but I just can't get my head around it in simple terms. Any ideas on how I might understand this more effectively?

dunstonh

Cumulative over 5 years will be the total over 5 years. Discrete will be each year of the 5 in isolation. (just picking 5 years as an example). cumulative on factsheets can be misleading as 1 good year could mask 4 bad. Or include a period that involves a different management term.

Past performance is largely pointless anyway. Even more so now. Some of the best funds going forward are likely to come from those that have had the worst recent performance. (generalisation alert).

Richard_DandR

Invesco Perpetual High Income Fund
http://investor.invescoperpetual.co.uk/UK/Factsheets/ICVC/high_income_fund.pdf

Discrete performance@
2004 2005 2006 2007 2008
21.7% 27.0% 27.3% 7.0% -19.4%

Cumulative for 5 years
1.217 * 1.27 * 1.273 * 1.070 * 0 .806 = 1.6968 or +69.68%

Fact sheet shows 69.7% for 5 years. Using figures to one decimal place doesn't normally get so close.

waltzer

Thanks very much to you both. R D&R, I can now see how it works and what it means. DH, I also understand your point (I hope). Past performance etc Regression to mean etc? I am working on the presumption that in many ways asset/sector/geography spread is more important than the actual fund choice 1) because of the point you raised above and 2) because getting spread right helps combat anomolous events and helps with spreading risk? The cumulative thing was just bugging me and I wanted to know. Now all I need to do is to work out some kind of diversified fund choices from the limited and homogeneous range of choices offered by SLife. Never mind, all this research will come in handy someday, I suppose. Next step...stop subscribing to cash ISAs and start putting money into fund ISAs for the next few years perhaps?
BTW DunstonH did you mean 1 exceptionally good year + 4 bad years could end up looking like 5 good years when viewed cumulatively?
Thanks again to you both for taking the time to reply.

dunstonh

BTW DunstonH did you mean 1 exceptionally good year + 4 bad years could end up looking like 5 good years when viewed cumulatively?

Yes. I mistyped a word. make should be mask. I have edited. 1 good year could mask 4 bad with cumulative.

Sector or asset allocation (sector allocation is easier with funds) is more important than the individual funds. The funds give you fine tuning but the bulk of the returns will come from getting the diversification and allocations right.

If its a group Std Life scheme, you may find you end up with lots of funds in the same areas but sadly lacking in others.

waltzer

Thanks. Yes I'm finding that that's the case. This might be a daft thing to say but with the funds all being similar might you end up being less diversified with say 6 funds as opposed to 3 or 4? I was wondering what would happen if 2 funds that were slightly different were also significantly invested in the same companies (if these 2 were part of a 6 fund group). Does this make sense?