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Vintage highlights – Europe ex-UK

Posted by: Sam Lees
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Membership level: Free
 
We are starting off our latest Vintage review with a look at Europe. This is ahead of our full Vintage update, which will be published later. Here is a preview of the European results, as Europe is a current theme, showing the great performance over time, and how the methodology compares with Dynamic Fund Ratings.
 
Looking for a more relaxed investment approach? Our Dynamic Fund Ratings are straight-forward, requiring about 30 minutes of your time twice a year. However, some investors might want to just review once a year. For those more relaxed investors Vintage Fund Ratings are an ideal solution. 
 
Here we look at what a Vintage rating is, how a fund gets it and the key performance stats for the Europe-ex UK sector.
 
Dynamic vs Vintage
 
As a refresher, our research is inspired by volumes of research going back to the 1930s. The research proves that, despite the investment industry’s mantra that past performance is no guide to future returns, the past is actually an excellent guide to the future.  It is called Momentum, buying “winners” e.g. buy what is performing well now because there is a high statistical likelihood that it will continue to do so in the period just ahead.
 
But something was missing from that original research, which was based on individual stocks.
 
What was needed was equivalent research on funds, and that is what we started almost 15 years ago. Our research confirmed what had gone before, but in the context of funds – that there was substantial extra growth by using a straightforward Momentum approach to fund selection, and we encapsulated that in our Dynamic Fund Ratings.
 
Today’s “winners” were defined by their performance over the last 6 months, again our unique research re-confirming with funds what others had uncovered in the context of individual stocks.
 
The features of those Dynamic Fund Ratings are:
  • They look at shorter term momentum
  • 6-monthly review periods
  • Likely high turnover of funds at those review points.
Using Dynamic Fund Ratings, we don’t care if the fund manager is skilful or lucky - we just want to piggy-back their current form.
 
In contrast, the features of Vintage Fund Ratings are:
  • They consider longer term performance
  • Annual reviews
  • Lower turnover at review points
The consistency which derives from the Vintage ratings suggests the fund manager is more skilful than lucky. We are looking back over 10 years and breaking down every 6-monthly period, analysing each one individually, and giving a greater weighting to the most recent performance.
 
In a nutshell, to achieve a Vintage rating a fund must be in:
  • top 40% of performers in its own sector
  • for 60% of the time in the last 10 years 
We did not think this was a demanding benchmark. But we found that 92% of funds failed to beat it in our original research – which is shocking. Nonetheless, it enabled us to identify the 8% which were doing rather well, with a high level of consistency.
 
No “Mates Rates”!
 
These rating systems are objective – not seat-of-pants. Nor are they based on the fund manager paying us for the rating, nor taking us out for long lunches.
 
It is not fund recommendation by proclaiming "because I'm an expert". 
 
There is no scope for Vintage or Dynamic ratings to be skewed by fund managers with a good story or a big marketing budget.
 
The Numbers?
 
Vintage ratings might be a simpler solution but that does not mean the results are mediocre. 
 
In the coming weeks we’ll be looking at a variety of sectors. Here we look at the results from selecting Vintage funds from the Europe ex-UK sector, with a review each July. 
 
In the graph we show the performance for selecting:
1.       the top single Vintage fund each July (blue line),
2.       the top 3 Vintage funds each July (green line) and
3.       the sector average (grey line). 
 
Plus, in the table under the graph we show you the volatility, by way of the Worst Calendar Month and the Worst Calendar Year for the period from July 2004 to July 2020. 
 
While you can’t “buy” the sector average it is a good way to illustrate how the Vintage ratings compare to their peer group.
 
Europe ex-UK sector
 
The best performing Vintage portfolio is the one selecting just the single top fund. It outperforms the sector average by 244% over the period. 
 
That’s an extra 3.5% per year.
 
If you had invested £100,000 in July 2004 that would have grown to £611,000. 
 
£244,000 extra – compared to the sector average (£367,000).
 
And the volatility is only about 70% of the sector average. The Worst Month fall is 17.5% for the Vintage portfolio (Top 1) compared with 25% for the sector average.
 
You would expect that adding in more funds would reduce the volatility but that isn’t the case here. The volatility for the portfolio of the top 3 Vintage rated funds is more volatile, with a Worst Month figure of 27%.
 
But the total returns are still good. The portfolio is up 342% over the period, 75% more than the sector average, which is 1.3% extra growth per year.
 
If you had invested £100,000 into the top 3 Vintage funds that would have grown to £442,000.
 
That is £75,000 extra compared to the sector average (£367,000).
 
Vintage portfolio performance (2004-2020)
 
Europe ex-UK
 
 
 
 
 
Overall %
Annualised %
Worst Month %
Worst Year %
Vintage Europe ex-UK (Top 1)
511%
11.9
-17.5
-13.5
Vintage Europe ex-UK (Top 3)
342%
9.7
-27.2
-16.4
Europe ex-UK Sector Avg
267%
8.4
-25.0
-16.4
 
 
Whichever approach you choose, Vintage fund ratings are a great resource for investors that don’t want to review every 6 months.  You can see from these numbers that the results are impressive.
 
But remember, you should not adopt a “buy-and-forget” approach with these funds (or any of your investments) because inertia is one of biggest roadblocks to you making the best possible gains. Make sure that your investment plan clearly includes a review process that you can follow, and make sure you write down a log of your past decisions. This is invaluable to refer to at future reviews.
 
Do get in touch with your feedback and let us know what you think and how you would use Vintage Ratings in your own portfolios.
 
The complete report with all the fund listings will be out in the coming weeks for Gold Members. Do keep an eye on the site for updates.
 
FURTHER READING
Topic: Generating growth


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