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On Fridays when pondering content for Hedge Clippings we occasionally resort to a Google search for famous people's birthdays. Occasionally we'll find one of note - normally an (old) musician from the 60's or 70's such as Bob Dylan or Leonard Cohen, who are both legends, and personal favourites.
For instance, on Tuesday of this week ex-Beatle Ringo Starr turned 80! Who would have believed it - and based on this birthday clip, who would have recognised him, even without the COVID19 mask? That's either testimony to his genetics, lifestyle, or the wonders of modern cosmetics. Not only does Ringo look pretty much like a 50 year old, but he doesn't even sound like an 80 year old. We're not sure if the Google ad which preceded the clip (for a hearing aid) was targeted specifically at yours truly, or just a punt on the demographics of people who can remember who Ringo was.
Elsewhere on the famous birthday list, exactly one month ago (June 10) was Prince Philip, who turned 99. Congratulations (belatedly)! No doubt he'll have received a special card from his number 1 Australian fan, Tony Abbott. Apparently there are 10 other people more famous than him (according to the list) most of whom seem to be either a YouTube, Reality or Instagram star under the age of 25. Hedge Clippings must be either out of date or out of touch (or both).
Which leads us to the dangerous, and sometimes confusing subject of lists, and in our little corner of the universe, specifically lists of top-performing managed funds. Having just closed out the financial year and a tumultuous four months of market mayhem, we learned long ago the dangers of top performing lists of funds, however popular they may be amongst those that appear in them. Sometimes the following year's performance is either embarrassing or disappointing, depending on whether you're the manager, advisor or investor concerned.
For instance, the list of top performing funds for the 12 months to December 2019 will look significantly different to the June 2020 version. And anyway, what constitutes "performance" in a sector where most offer documents suggest an investment time frame of 5 to 7 years? Headline performance by itself only tells part of the story, with risk factors such as drawdowns, down capture ratios and volatility being more relevant to most risk-averse investors in a post COVID world.
Hedge Clippings frequently compares and quotes averages, and while statistically absolute return and actively managed funds outperform markets and indices, averages can be dangerous: Over the past 12 months to June the average net return of all funds on www.fundmonitors.com is -0.35%, compared with -10.42% for the ASX200 Total Return Index. That's a clear 10% outperformance, with 83% of funds outperforming the index, and 60% with positive 12-month returns.
Impressive numbers, unless you're invested in the other 40% - but even then, that's only over 12 months, not the recommended 5-7 years. Picking winning funds, like winning stocks is challenging, but more often than not it's a case of avoiding the losers, or at least creating a blended portfolio of funds with a low correlation to each other to minimise risk.
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