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Finding outstanding portfolio funds performance

Finding outstanding portfolio funds performance

Waikato investors in managed fund portfolios are the first being asked to join a new national consumer investor organization and an allied independent ranking of portfolio of funds performances to be supplied by new-comer Invespectra. The promise is that for the first time portfolio performance will be able to be compared by consumer investors in a benchmark ranking.

A report by the Reserve Bank of NZ [Bulletin, Vol. 70, No. 4] indicates that consumers would be better off if financial products were made more attractive. Two of the identified needed characteristics are :

• A ‘league table’ of investment products; and

• Consumer checks on investment products, providers, and advisers.

The only missing ‘league table’ is a performance comparison of private portfolios of funds as advised by investment advisers. Investors in portfolios of managed funds receive their quarterly report from their investment adviser but have no benchmark against which to judge performance. That can also be frustrating to top performing investment advisers representing their hierarchy.

The performance of the portfolio derives typically from 10 to 20 selected managed funds and in turn their selected thousands of under-lying stock exchange listed companies around the world. Performance is necessarily variable depending partly on the skills of the investment committees and managers in the pyramid investment hierarchy, and partly on world economic factors.

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Such a performance ranking report is valuable. During five years to June 2011 including the GFC, the difference between top and bottom performance was over 44%. The selection decision of investment adviser provider pyramid appears to be more important than any other investment decision.

Kiwibank’s GMI Investments observe that investors can look at how investment providers perform in a financial crisis event. That can provide some good indicators as to whether the strategy is a good. [paraphrased]

For an industry which sells performance, the lack of a performance comparison service is puzzling. The reason for the gap is that, within the industry, it is no-one’s job to provide such a benchmark for consumers. Employers are constrained as are industry representative organizations.

Invespectra proposes filling that gap if consumer investors support the concept. The new service will also be very good for investment advisers who have a duty to put their client’s interests first. In the main, they are not responsible for investment performance.

A key element is that the true competition for managed fund investment is residential housing investment. This factor is identified in the RBNZ report. Kiwi-saver has been helping open up understanding of the mutual fund industry.

More details can be seen in the website The new consumer organisation should be able to fulfill the other RBNZ requirement for ‘Consumer checks on investment products, providers, and advisers’ as well as tackle other public interest areas such as the unfair tax situation.

In a novel development, the founder proposes that the allied consumer organization will be able to appoint directors to the company which supplies the performance ranking reports. The founder is Miles Hayward-Ryan, a former investment adviser, an innovation consultant, and in-house lawyer.

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