Should I invest some money in a equity fund?

jamesd

Past performance may provide some indication of skill, though the Neptune multimanager fund was ranked 1 in 2003, 2 in 2004, 6 in 2005, 105 in 2006. Question is, did it get lucky for the earlier years, did management change or did something else happen. Here are the ranks for the others from 2003 through 2006:

M&G 22 8 19 30
Halifax 13 7 14 25
Jupiter 7 4 10 7

With around 200 funds in the sector there does seem to be some memory at work here. Of course, that memory could just be a long term trend that those funds happen to be riding...

Dropping the restriction to multimanager funds, here's how the top 10 in 2003 results did for 2003 through 2006:

Neptune MM: 1 2 6 105
Invesco: 2 14 63 14
First State: 3 101 2 173 New manager 8/06
SJP Recovery: 4 50 39 34
GAM Global: 5 68 64 24
M&G Basics: 6 1 5 16
Jupiter: 7 4 10 7
M&G Int: 8 5 61 46
New Star: 9 72 3 133
Neptune Global A: 10 9 1 5

More variation here but picking based on just one year's record seems to have significantly improved the chance of outperforming the middle-ranked fund in later years.

I don't expect all children or all funds to perform above average, which is what you're suggesting when you ask for all managed funds to beat the index of those funds.

carnet

jamesd wrote: »

Past performance may provide some indication of skill, though the Neptune multimanager fund was ranked 1 in 2003, 2 in 2004, 6 in 2005, 105 in 2006. Question is, did it get lucky for the earlier years, did management change or did something else happen.

Management did change.

Neptune MM Gth used to be, IIRC, Quilter Gth (its income equivalent, Quilter Inc, is now Neptune MM Inc). Both were taken over by Neptune and have, since 8/05, been managed by John Husselbee who left Hendersons to set up a MM outfit (North Investment Partners) within Neptune.

He has struggled to maintain Quilter's past good performance.

EdInvestor

It is quite easy to weed out the thousands of 2nd rate funds if you go to this site and look at the top 10 funds in each sector you are interested in:

https://www.citywire.co.uk/Funds/Home.aspx

To further refine your selection and check for consistent performance, see if the fund of choice is in the top 10 lists over 1,3,5 and 10 years. Only the fittest survive after 10 years, that's for sure.

carnet

EdInvestor wrote: »

To further refine your selection and check for consistent performance, see if the fund of choice is in the top 10 lists over 1,3,5 and 10 years. Only the fittest survive after 10 years, that's for sure.

Have never seen the logic in this approach in helping to choose funds.

The vast majority of a fund's performance is due to the ability (or otherwise) of its manager.

OK, if a fund has had the same manager for 10 years or been lucky enough to have had two or three exceptional consecutive managers over that period (rare) then the long term performance figures may tell us something.

However, with manager tenure averaging only 3.25 years it could well be that one is looking back at past performance figures of two or three (or more) previous managers. Its the ability of the current manager that is the crucial factor.

As a topical example, the 10 year performance figures of Fidelity Special Sits look good but these are all due to a previous/soon to be previous manager. The abilities of the current/future managers are relatively unknown, so IMHO it would be somewhat unwise to pick this fund now on the basis of past performance.

The same applies to many other funds.

Past performance figures are only of any worthwhile benefit in helping pick funds if one also has a fairly detailed knowledge of fund managers' tenure ie who exactly was responsible for the performance at any particular time.

The most important element in choosing a fund is not past performance but in having confidence in the current manager's ability to outperform - and to keep a keen eye on the managerial roundabout.

As an example, I had just two weeks ago topped up my investment in JPM Eur Dynamic ex UK Fund because I rated the manager Ajay Gambhir. However, he suddenly departed JP Morgan last week - and I immediately sold my entire holding in the fund.

EdInvestor

carnet wrote: »

The vast majority of a fund's performance is due to the ability (or otherwise) of its manager.

Quite so: but information about the identity and career of individual managers is not that readily available.Indeed the best indicator that a good manager is in action may be a fund's consistent performance over a long period

It's somewhat of a chicken and egg situation: but for someone who starts off with no knowledge of who any of these suits are, and no inkling that their individual skills may be important, a comparison of the long term performance info is usually an easier place to start.

carnet

EdInvestor wrote: »

Quite so: but information about the identity and career of individual managers is not that readily available

It is - if you make the effort to look for it.

Indeed the best indicator that a good manager is in action may be a fund's consistent performance over a long period

The best indicator that a good manager is in action is the manager's consistent performance over a long period.

For the reasons given above, it can be dangerous to go by a fund's past performance

a comparison of the long term performance info is usually an easier place to start

If little or none of that performance is down to the current manager what is the value ?

dunstonh

Plenty of people have had their fingers burnt by fund managers who haven't protected them from the downside, or haven't invested wisely at the right time, while depleting the value with charges.

That has nothing to do with managed vs tracker. Tracker funds tend to suffer more due to lack of downside protection.

It has more to do with no investing at the correct risk level to begin with and usually not diversifying enough.

Carnet, Fidelity European fund is a classic example of why you shouldnt use the method Ed suggests. It would appear top or near top in 1,3, 5 & 10 (maybe drifting a bit now in 1). However, the fund has gone downhill fast and the replacement fund manager who took over 4 years ago had no impact on 5 and 10 performance.

And as you say, averaged performance allows distortions.

EdInvestor

If you want to start from the fund managers, go to this section of the Citywire site:

http://www.citywire.co.uk/CFI/Home.aspx

Then you can crosscheck with the fund performance section as above.

EdInvestor

dunstonh wrote: »

Carnet, Fidelity European fund is a classic example of why you shouldnt use the method Ed suggests. It would appear top or near top in 1,3, 5 & 10 (maybe drifting a bit now in 1). However, the fund has gone downhill fast

Actually, the fund has not gone downhill fast at all, has it? Plenty of time for an astute investor to have found another better one. No sudden plunge at all.

dunstonh

Actually, the fund has not gone downhill fast at all, has it? Plenty of time for an astute investor to have found another better one. No sudden plunge at all.

A novice investor (which is more typical of those posting here) would have chosen it based on your 1,3,5 & 10.

Most people posting here are not astute investors. They are "newbie" investors who are being told by you to go DIY and use a method to pick funds which has flaws.

Past performance is no indication of future returns.