Global Tracker Funds

bowlhead99

There are a few things that can mean that performing in 'some market conditions but not in others' is not just luck; generally if the conditions you do well in are broadly positive markets, that's fine, because over the long term, we do find broadly positive markets in all sectors.

For example being an investment trust that can employ leverage is an advantage you can press when markets are rising, but obviously it is not an advantage when markets are falling so you would want to turn it off. Done correctly (which is a skill) you would have a boost of outperformance in the good times but no observable outperformance in the bad times.

Or what if you are a long-only active manager who is 'really really good' at spotting the best companies that will do well out of particular circumstances such as changing regulations, government stimulus, certain other macroeconomic effects ; but your research techniques are only 'averagely good' during certain other periods. Such advantages are still net positive overall even if you are not seen as any better than an index at arresting the downward falls in the bad times.

Either of those examples could point to performance differentials across the cycle which were not driven by pure luck. So it could be true to say that they were outperforming in some conditions and not others, without it being a fluffy way of saying it's all random.

If you look at TEM IT's history, they fell further than their peer group during the global financial crisis in '07-'08, and then they had a three-and-a-bit year period of underperformance from, say, 2012 to 2015 when they made some calls that didn't work out, particularly in the energy and materials sectors.

If you were someone assigning the shiny gold stars at Trustnet or Morningstar or whatever, and your criteria focussed on relatively short term performance and volatility, then at the end of 2015 you would not be looking to give them many stars and you would say they had fallen from grace and investors could do better elsewhere. The fund's performance was a mixed bag during that period - accounting year to Sept 2012 was 3% behind the index, year to Sep 2013 was only 1% behind the index, then Sep 2014 was 3% better than the index; the big problem was that year to Sep 2015 was a bad one - losing double the 13-14% that the index lost.

As you then look back today at the 3 year performance and 5 year performance, that 'mixed' period and particularly the poor 2015 result weighs heavily against it, and ranks it well down below the index (five year annualised NAV performance, per November factsheet, was 3.25% vs 6.1% for the index).

However, typical long term investors in a fund like TEMIT see further than the typical 3yr or 5 yr measures that the websites do their rankings on, or that platforms like HL use to write their marketing puff pieces when they don't want to complicate matters by giving their customers graphs that go back longer than five years.

The same November factsheet shows that since summer of '89, TEM IT's share price growth was 2200% vs MSCI EM index 1200%. NAV growth was even higher (as fund is on a discount to NAV). If you look at just the last ten years, the fund has done 125% NAV (126% share price) versus the index 103%.

That looks OK. Perhaps the sceptics would say this is all 'former glories' and you should just look at the bad 'current' 3-5 year performance and use that to make your judgements. It is true that TEMIT reaped the rewards of being something of a pioneer of EM investing for its first couple of decades and is maybe less of an innovator now. However, we know that 3-5 years is not a suitable time to hold an investment, so rejecting them to find solace in the index based on some relatively short period in which they had a wobble, is not something I would advocate.

For example, if you want to look at another too-short to judge measure, you could look at the 1-year performance. Their November factsheet declared 43% NAV growth vs 31% for the index. Their September quarterly report showed the index was up 37% over the preceding year but TEMIT NAV was up 49%. Today Trustnet shows +44% for the year vs 26% global emerging market investment trust peer group composite.

So, there was a blip in 2012-15 meaning the well-reported 3yr and 5yr returns are unimpressive, leading you to say "they couldn't even beat the allegedly easily-beaten index..." but the fund is comfortably ahead of the index for the last year, and for ten years, and for 25 years.

I continue to hold. I cut my allocation to it last year when they announced the legendary Mark Mobius was stepping down / taking a backseat from being the lead manager to be more of a figurehead role, and part of believing in persistent outperformance of some managers is to take notice of management changes within the teams that run your fund. However, I didn't cut it down by a massive percentage because (a) the fund had some recent negative performance under the 'outgoing' management anyway; (b) the team is collegiate in style and the new person is an internal promotion who has been there in the background, rather than an unknown outsider (c) the outgoing manager is still part of the business.

So far, I am happy that I didn't just dump that particular fund at its bottom to hop on to the index (YMMV, DYOR etc etc).

coyrls

I think this could be the article referred to by Koru above: https://www.trustnet.com/News/659877/the-data-that-proves-just-how-much-active-emerging-market-funds-have-let-long-term-investors-down/#oas_Top

koru

bowlhead99 wrote: »

Not sure if you're saying something different from what you meant to write?

Yes, I got confused and said the opposite of what I meant. Sorry! I've now edited it.

Linton

The problem with EM funds is that you need to look carefully at where they are invested. EM covers a wide range of quite different geographies. For example the MSCI EM index 's top 2 countries are China at 27.55% and South Korea at 14.55%. Aberdeen EM Equity's top 2 countries are India at 16.46% and Brazil at 11.36%. Comparing the Aberdeen fund against an MSCI tracker fund doesnt mean very much.

koru

coyrls wrote: »

I think this could be the article referred to by Koru above: https://www.trustnet.com/News/659877/the-data-that-proves-just-how-much-active-emerging-market-funds-have-let-long-term-investors-down/#oas_Top

I don't think so, because the one I'm half remembering was about the percentage of fund managers in a particular sector that not only outperform the sector, but manage to sustain the outperformance. I have a feeling it was an analysis by Vanguard from 2014, as linked in this Monevator article: http://monevator.com/passive-investing-uk-evidence/ Strangely, the link now takes you to an analysis dated August 2016, so I'm wondering if Vanguard have updated the 2014 analysis and have removed the other sectors, leaving just figure 5, which combines all the sectors.

grey_gym_sock

bowlhead99 wrote: »

There are a few things that can mean that performing in 'some market conditions but not in others' is not just luck; generally if the conditions you do well in are broadly positive markets, that's fine, because over the long term, we do find broadly positive markets in all sectors.

For example being an investment trust that can employ leverage is an advantage you can press when markets are rising, but obviously it is not an advantage when markets are falling so you would want to turn it off. Done correctly (which is a skill) you would have a boost of outperformance in the good times but no observable outperformance in the bad times.

Or what if you are a long-only active manager who is 'really really good' at spotting the best companies that will do well out of particular circumstances such as changing regulations, government stimulus, certain other macroeconomic effects ; but your research techniques are only 'averagely good' during certain other periods. Such advantages are still net positive overall even if you are not seen as any better than an index at arresting the downward falls in the bad times.

Either of those examples could point to performance differentials across the cycle which were not driven by pure luck. So it could be true to say that they were outperforming in some conditions and not others, without it being a fluffy way of saying it's all random.

some good points.

using leverage is an interesting one. because you don't even have to suppose the manager has the skill to know when to increase/decrease leverage for it to help. supposing they just use a little leverage all the time, then they will tend to outperform an index when markets are rising, and underperform when they are falling. but providing that the rises are - in the very long run - bigger than the falls, then leverage can boost returns. this is 1 of the possible attractions of investment trusts.

If you look at TEM IT's history, they fell further than their peer group during the global financial crisis in '07-'08, and then they had a three-and-a-bit year period of underperformance from, say, 2012 to 2015 when they made some calls that didn't work out, particularly in the energy and materials sectors.

If you were someone assigning the shiny gold stars at Trustnet or Morningstar or whatever, and your criteria focussed on relatively short term performance and volatility, then at the end of 2015 you would not be looking to give them many stars and you would say they had fallen from grace and investors could do better elsewhere. The fund's performance was a mixed bag during that period - accounting year to Sept 2012 was 3% behind the index, year to Sep 2013 was only 1% behind the index, then Sep 2014 was 3% better than the index; the big problem was that year to Sep 2015 was a bad one - losing double the 13-14% that the index lost.

As you then look back today at the 3 year performance and 5 year performance, that 'mixed' period and particularly the poor 2015 result weighs heavily against it, and ranks it well down below the index (five year annualised NAV performance, per November factsheet, was 3.25% vs 6.1% for the index).

However, typical long term investors in a fund like TEMIT see further than the typical 3yr or 5 yr measures that the websites do their rankings on, or that platforms like HL use to write their marketing puff pieces when they don't want to complicate matters by giving their customers graphs that go back longer than five years.

The same November factsheet shows that since summer of '89, TEM IT's share price growth was 2200% vs MSCI EM index 1200%. NAV growth was even higher (as fund is on a discount to NAV). If you look at just the last ten years, the fund has done 125% NAV (126% share price) versus the index 103%.

That looks OK. Perhaps the sceptics would say this is all 'former glories' and you should just look at the bad 'current' 3-5 year performance and use that to make your judgements. It is true that TEMIT reaped the rewards of being something of a pioneer of EM investing for its first couple of decades and is maybe less of an innovator now. However, we know that 3-5 years is not a suitable time to hold an investment, so rejecting them to find solace in the index based on some relatively short period in which they had a wobble, is not something I would advocate.

For example, if you want to look at another too-short to judge measure, you could look at the 1-year performance. Their November factsheet declared 43% NAV growth vs 31% for the index. Their September quarterly report showed the index was up 37% over the preceding year but TEMIT NAV was up 49%. Today Trustnet shows +44% for the year vs 26% global emerging market investment trust peer group composite.

So, there was a blip in 2012-15 meaning the well-reported 3yr and 5yr returns are unimpressive, leading you to say "they couldn't even beat the allegedly easily-beaten index..." but the fund is comfortably ahead of the index for the last year, and for ten years, and for 25 years.

I continue to hold. I cut my allocation to it last year when they announced the legendary Mark Mobius was stepping down / taking a backseat from being the lead manager to be more of a figurehead role, and part of believing in persistent outperformance of some managers is to take notice of management changes within the teams that run your fund. However, I didn't cut it down by a massive percentage because (a) the fund had some recent negative performance under the 'outgoing' management anyway; (b) the team is collegiate in style and the new person is an internal promotion who has been there in the background, rather than an unknown outsider (c) the outgoing manager is still part of the business.

So far, I am happy that I didn't just dump that particular fund at its bottom to hop on to the index (YMMV, DYOR etc etc).

i do strongly suspect that, in the early days of TEMIT, emerging markets offered more opportunities for a smart, well-resourced manager to outperform. so i would tend to discount the early part of their record, i.e. i would at least not expect future outperformance on that scale.

and you are right that 3 or 5 years is a bit short to judge. so should we look at the 10-year record (which is decent, though not incredible)? well, we could ...

one of the problems with accepting a few years' underperformance (as just a blip) is that you could end up stuck in what turns out to be a dud fund for perhaps 10 years before you make any move away. by the time you switch, everybody (via MSE forums brain implant) will be saying that they knew your fund was rubbish years ago, and they had the next big thing, which you're only just going to move to (perhaps just before it goes bad).

it's a tough business selecting active funds. and you don't have to do it

coastline

all on the one chart...for some reason NAWORLDS isn't joined up in the link but it should work manually..

https://www.trustnet.com/Tools/Charting.aspx?typeCode=NM990100,NM892400,NWORLDS,NAWORLDS