In previous articles we’ve illustrated that if you invested in a fund that was performing exceptionally well, there was a high probability of poor performance in the periods that follow and that many of today’s outperformers were yesterday’s underperformers. The difficulty lies in choosing the right fund to invest in at the right time, something we believe comes down to mostly luck. At the recent Raging Bull Awards, the equity fund that received the award for best performance over three years to 31 December 2018 was the worst performing fund over 10 years and second worst performer over 5 years. This begs the question: How consistent are well-known fund managers in their performance?
Common thought is that the biggest funds in the industry have the most assets because they are the safest choice for the man on the street. So, let’s take the 5 largest equity funds in the Domestic General Equity sector that have a ten-year history, include an index fund, and see how consistent performance really is. One might reasonably expect that the biggest funds in the industry consistently performed better than 50% of competitor funds – i.e. they consistently outperform 50% of the funds in their peer group.
The graph illustrates that this is, in fact, not the case. Some funds consistently performed worse than competitors while others were simply inconsistent. However, for Gryphon, the most important point is how our index fund (named “Fund G”) was the most consistent fund by far, beating more than 80% of peers all of the time.