Things are not always what they seem
The local share market declined by more than 11% in 2018. All of the South African general equity unit trusts lost money over the past year – with some down more than 20%.
But experts say you shouldn’t look at share performances over a year, because the stock market is too volatile. Three to five years provide a better yardstick to measure investment performance.
This article pulls together some research from Fundsdata and compares the performance of the best versus the worst in general equity over 5 years, 3 years and 1 year.
We found two things that really stood out. Pay close attention to Satrix Momentum Index while reading the article here. Also keen a close eye on the top 5 in each year. Do you see a pattern?
Below is one thing that what caught our eye
We do not believe in just trying to pick the top funds as this strategy has proven to have massive negative turns. All too often we see fund managers unable to predictably achieve the top returns and very often in our opinion in order to be the best and maintain that top spot funds might need to take more or less risk than normal to achieve this.
Looking at the top funds for this exercise is worth it. Without proper revision or advice, these funds are not a recommendation on our part as to what you should invest in.
Jumping ship every time we experience volatility will lead to us being in the wrong place at the wrong time way too often. We believe a good investment goal should be to plan for targeted returns over the required time horizon, with a focus on providing returns that match the investment risks you are taking.
Looking at Satrix Momentum Index over 5 years it is 4th in its class. Had you invested R100 5 years ago, you would be very happy to have R144 now.
That same fund over a 12 month period where markets didn’t perform your performance in the Momentum Index Fund would have been at the bottom of that same class.
Easy to want to call it there and jump to another fund but we need to look at the underlying reasons and see if any of the fundamentals changed.
We take two valuable lessons from this:
- Don’t be too hasty to make changes when returns don’t go your way. 1 year is a very short period while trying to earn compound growth. Evaluate your strategy and if there is a fundamental change then adjust your course.
- Picking the top funds is not always the winning strategy as things change. This is why we diversifying. We diversifying by fund managers, asset classes, management styles and more.
If you would like to talk more about your investments or other financial matters contact us.
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