The shining light of managed funds

When I joined the industry in 2007 and for a few years after that, you just couldn't escape the amazing reputation of the Platinum International Fund.

It truly was the shining light of the managed fund industry. The portfolio manager Kerr Neilson was the Messiah of fund managers, 'could predict the future', and you had to include this fund in portfolios, despite it's very high price tag (1.54% p.a management fee), because, as I've said, it was 'the fund'. The one that can shoot the lights out and do what others can't.

For myself though, I wasn't so convinced. Sure, the performance of the fund was staggering, but, my beliefs were and still are, that markets are efficient and it is very very difficult, if not impossible, to outperform the market consistently, especially after costs. Whilst the performance of the fund was good, these beliefs were core to me and I took the path that low cost, highly diversified, asset class investment model would be the best thing for my clients.

It has now been a number of years since I've been in 'that part of the industry'. Researching the flavour of the month, who's put on a really good sales pitch (over lunch at the Hilton) etc etc, so I don't monitor the movements or performance of funds.

Anyway, today I received my invitation to the annual FPA roadshow. I enjoy going to the FPA roadshow as it's usually a big event, I catch up with many old friends in the industry, it usually has a lot of important information, and it's free and includes a lunch. However, the free and includes a lunch usually comes with another price tag - having to listen to a presentation by the sponsor. Last year it was Challenger, proving an 'educational' session on including annuities in retirement portfolios (one of my bug bears is product providers providing education to financial planners as it can often be misleading but that is another story).

Anyway, this years sponsor is Platinum Asset Management and that struck me as very strange. My my last knowings of how they were going, they didn't need to advertise.

So, what was going on? I thought I would check it out. And what do you know, the Platinum International Fund had under performed for about the last 7 years (ups and downs along the way as it is quite volatile). I thought this was quite interesting on 2 fronts:

  1. I was right in the fact that this fund couldn't consistently outperform like so many thought. Sure, they had done some things in the past that paid off very well, but clearly isn't a bulletproof strategy with 7 years of under performance. and;
  2. Probably the bigger thing is the fickle nature of financial advisers, no longer content with this fund as it's under performed for a bit, they will now be piling their clients money into another fund which has just done well but has no basis that it will continue to do well. Always chasing 'last years' winner. A strategy that is guaranteed to cost the investors money over the long term.
This second point is evident when looking at the fund size compared with the movements of the global stock market (if no one invests new money and no one withdrawals money, the fund size should move in unison with the market movements)

As you can see, the blue line (platinum international fund size) has not grown anywhere near as much as the market (red line) has over this 6 year period, meaning there has been more money withdrawn than new money contributed. 

So how do I invest clients money? Simple, low cost, highly diversified portfolios that capture the returns of asset classes efficiently. The structure of the portfolios asset classes is based on the clients specific goals, objectives and risk tolerance. Remain disciplined, invest regularly and concentrate on the things we can control.

Glenn Hilber is a Certified Financial Planner with over 10 years experience and the owner of Precision Wealth Management.

This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.

No comments:

Post a Comment