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Vintage Funds for the Less Active Investor

Posted by: Brian Dennehy
Membership level: Free

 

For those investors less keen on constantly monitoring their portfolios there are a very small number of outstanding funds that do perform better than their peers.  Here we identify three, and the handsome additional profits which they have generated.

Not Everyone Is Pro-Active

If you are someone who doesn’t want to be pro-active with your investments our Vintage Fund Ratings may be what you’re looking for.

Vintage ratings tell us about the quality of a fund along with the likelihood of the fund maintaining above-average performance.  The ratings are derived from 10 years’ worth of data (see Technical Stuff).  A high Vintage rating suggests that the growth for the fund results from skill rather than luck, and that this skill will generate extra profits going forward.  

Surprisingly Bad Results!

We thought that the benchmark for a fund to achieve a Vintage rating was not too high. (See Technical Stuff).  But more than 90% of funds failed.

Still, there is a silver lining.

The good news is that we identified a small number of outstanding funds.  The sort you can review once a year, but which are unlikely to keep you awake at night. 

KISS – Keep It Simple Stupid

Typically, investors tend to hold too many funds, which are more difficult to track.  If you are a less active investor it’s better to focus on a few outstanding funds rather than many mediocre ones.

For the purposes of simplicity, we’re limiting the hunting ground to these three fund sectors:

  • Cautious investor?  Try Mixed Investment 0-35% Shares
  • Relaxed investor?  Mixed Investment 20-60% Shares
  • Ambitious investor?  Mixed Investment 40-85% Shares

The names of the sectors are horribly uninspiring, so a little explanation helps.

For example, the most popular is Mixed Investment 40-85% Shares with about £59bn invested**. As the name suggests such funds contain between 40% and 85% in equities.

So, we suggest this sector is appropriate for you if you are a tad more ambitious, are well informed about the downs as well as the ups of the stock market but are relaxed about this.

Funds For Extra Growth

These are the three outstanding, Vintage-rated, funds within these sectors:

Here is the evidence of the extra growth generated by these funds over the last 10 years:

Sector

Average Annualised Growth (%)

Fund

Annualised Growth (%)

Extra Growth each year vs. Sector (%)

Mixed Investment 0%-35% Shares 

3.23

Jupiter - Distribution

4.26

1.03

Mixed Investment 20%-60% Shares 

3.81

Premier - Multi-Asset Dist

4.65

0.84

Mixed Investment 40%-85% Shares 

4.81

Premier - Multi-Asset Gr & Inc

6.94

2.13

Performance data 10 years to 28/2/17

This extra growth (see final column) is significant over longer periods.

Final Thoughts

We do recommend that you review these funds annually. Their quality is such that you may not need to change them annually, but an annual review is good practice and should be part of your discipline. 

Put another way: don’t adopt a completely “buy-and-forget” approach.  Inertia is one of the biggest roadblocks to you making the best possible gains, because even the very best funds go off the boil eventually.

Last but not least, notice how these top-rated funds have either a “distribution” or “income” tag.  This is no coincidence.  Unless you want the income paid out it can reinvested for you.  This provides a significant boost to the growth of your fund, which is a very important early lesson for an investment novice.

ACTION FOR INVESTORS

  • Don’t adopt a “buy and forget” approach.
  • Even if you are a buy-and-hold investor, don't forget to review your funds regularly.
  • Income investor? Use our Income Tool to find the best UK equity income funds

FURTHER READING

 

** This is the total fund sizes for the Retail UT/OEICs universes (main units).

The Technical Stuff

For those interested in the basis for calculation, to achieve a Vintage rating a fund must be in the top 40% of performers in 60% of the time.  The “time” is the 120 overlapping 6 monthly periods in the last 10 years.  

Topic: Generating growth


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