Beware of an exclusive focus on performance data
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When selecting an investment for a client from the whole of the market – as IFAs will now have to do after the RDR – an adviser’s first port of call is typically data.
Data filters can now screen the whole of the retail fund market on a bewildering range of quantitative factors – including whether funds have demonstrated they can outperform. If they cannot get through this initial screen of their past and present attributes, advisers are unlikely to be able to analyse a fund’s future prospects or its suitability for their clients.
Advisers should be aware that these data filters may not give them a representative account of the kinds of products and approaches that are available
In some instances, however, advisers should be aware that these data filters may not give them a representative account of the kinds of products and approaches that are available to them in the market. A notable example of this is GLG’s UK Select fund, run by John White and housed in the IMA’s UK All Companies fund sector.
Launched in August 2009, this fund just passed its three-year anniversary – traditionally a milestone in the retail market, as many IFAs have historically not considered a product unless it has a three-year track record. Since launch to September 5 2012, according to FE Analytics, the fund has returned almost 10 percentage points less than its performance benchmark, the FTSE All-Share index, and the average fund in its IMA sector – 27.9 per cent compared with 37.6 per cent and 37 per cent respectively.
However, these performance figures tell far from the whole story. The GLG UK Select fund is an onshore incarnation of a UK equity strategy that Mr White has managed since November 30 2006. Before the UK Select fund was launched, this strategy was housed in a regulated offshore fund called GLG UK Select Equity. As this fund has now closed, performance data for it is now unavailable on FE Analytics.
Yet if you combine the performance of UK Select and UK Select Equity, the performance of the strategy as a whole is remarkably good. According to GLG, from November 30 2006 to May 31 2012, the strategy – known as GLG UK Equity Composite – returned 21.4 per cent compared with 8.1 per cent for the FTSE All-Share. According to FE Analytics, the FTSE All-Share returned 8.1 per cent – so the figures are calculated on the same basis – and the average fund in the IMA UK All Companies sector returned 3.1 per cent. Nor has the interim period between May 31 and September 5 affected this overall outperformance: the FTSE All-Share has risen 7.9 per cent, the UK All Companies sector 7 per cent and the GLG UK Select fund 5.7 per cent.
For advisers, there is a lesson to be learned. Strategies that have outperformed significantly over the long term are few and far between. Only a tiny proportion of this small selection of strategies will be suitable for an individual client. Given that these strategies in some sectors remain so rare, advisers need to be careful that performance data doesn’t make them overlook a potential winner.
Nick Rice is editor of Investment Adviser