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Are you chasing the latest sexy investment?

Beware of choosing Investments based on past performance

Making the right InvestmentThe investment industry has some of the most savvy and creative marketing departments in the world. They are masters at promoting their products and delivering messages that appeal to our emotionally biases. In times of fear and recession, they promote safe, stable and reliable investments and launch new ways to keep your cash safe.

In the current climate of rising markets, as was the case in 2003-2007, they developed and launched more and more aggressive leveraged investments to play on the greed and risk appetite that was in the market.

In my opinion, the investment management industry are only interested in one thing, promoting whatever it takes to get you to invest more funds with them, and in turn, increasing their fees.

The problem with this is the use of past performance. They back test a new fund and show how it has performed excellently over the past 5 years and you should not miss out on the great opportunity to be in a fund that has ‘beaten the market’ or found a new way to ‘protect your capital’ etc. etc.

Below I have listed the top 5 funds in the Irish market each year from 2009 to 2013. I have deliberately left out geared equity funds from this list. As you can see there is very little overlap and funds that did well in one year, rarely repeat the performance the following year. The notable exception to this are the Property Funds, which fell so heavily in 2008 that they have actually had multiple years of strong returns. They are largely still significantly below their 2008 levels though.

2013
Zurich Green Resources Fund
Standard Life European Smaller Companies Fund
New Ireland Irish Equity Fund
Canada Life Irish Equity Fund
Bank of Ireland Irish Equity Fund

2012
Canada Life Irish Equity Fund
Amadeus Asian Real Estate Fund
Friends First Corinthian Property Fund
Zurich Australian Property Fund
Irish Life Bancscope Fund

2011
Standard Life Extended Duration Bond Fund
Friends First Insight Property Fund
Zurich Gold Fund
Zurich Irish Government Bond Fund
Friends First Pan European Insight Property Fund

2010
Friends First UK Property Fund
Standard Life UK Smaller Companies Fund
Friends First Insight Property Fund
Irish Life Fidelity EMEA Fund
Zurich Gold Fund

2009
Standard Life Indian Equity Fund
Friends First Explorer Emerging Markets Fund
Phoenix KBC Euroland Equity Fund
Standard Life China Fund
Irish Life India Fund

The table above covers all asset classes and fund types. If I do the same exercise for a single asset class, European Equities, we get similar results.

What does this prove?

Beware of investment marketing that promotes or mentions past performance. Rarely do fund managers beat the market or top the investment rankings on a consistent basis. Rarely do the same asset classes top the rankings either on a consistent basis. The only truly successful long term investment strategy is a well-diversified portfolio including most of the asset classes included in the list above, with charges kept to a minimum and a long term investment horizon.

Simple as that!

If you would like to discuss an investment strategy that suits your requirements please contact us.

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