At Trinity, we receive our data through Morningstar and this allows us to analyse, to a very deep level, the funds we recommend to clients. Morningstar provide a host of data and have just released info on the best and worst selling funds of 2018. This is worked out as a net inflow or a net outflow. I.e. how many people have bought the fund versus how many people have sold it!
I always find this information fascinating, although because it is measured in a monetary amount rather than a percentage, it’s always going to be the bigger funds which our going to be in the top or bottom ten.
But this can still give us an idea of what investors (and typically their advisers) are thinking. What always strikes me is the net outflows of funds which have had poor performance versus the net inflows of funds that have had a good year.
Take for example Neil Woodfords fund and also his previous fund Invesco High income (Now run by Mark Barnett) which between the two of them saw outflows of £3.84bn in 2018!
In truth, their styles have not been effective in the current economic climate which has favoured other more growth orientated styles but one can’t help feeling that there is a degree of chasing returns from some investors, and in the same way that a cricket captain could move a fielder into the gap where the batsman has just hit a four (to then watch the batsman score another four through the gap that the moved fielder has now created) a little patience in these two fund managers is deserved.
Every footballing centre forward has a period when they cannot score goals but they don’t stop being good centre forwards! So it is with fund managers!
But it works the other way. I constantly get calls from reps asking me why I’m not investing in their fund that has returned 10% p/a for the last three years (or something like that) and I say, ‘why didn’t you call me 3 years ago! Outperformance of an index requires skill and luck and all fund managers go through a time when their luck is in short supply. Typically following a good run! Would I risk my clients money on the basis of performance track record alone?
It is noticeable that there are some good performing funds receiving inflows. Is this money arriving at a party that is winding down, and where the cool party goers are just about to move on to the next happening event?
Some investment choices I can understand. Take the Standard Life Global Absolute Return Strategies (GARS) fund. This has had outflows totalling £13.9 billion in the past 2 years. (Yes, that isn’t a typo) and investors are falling out of love with Absolute Return funds. Here is a classic case of a promise being unfulfilled. The jury is out when it comes to Absolute return funds. If they don’t have a good 2019 (and with the expected volatility they have no excuse not to!) then I can only see outflows increasing.
Where possible, we will look to access markets passively and buy a tracker as a core holding. I am intrigued to see that within the top ten there is a UK equity tracker and in the bottom ten there’s one as well. I am not sure quite what that tells us, perhaps this is evidence to show that there is no one out there who has an idea which way Brexit is going to take markets? Surely this is a time to be holding fast to the original asset allocation and remind ourselves that equity investing should be for the long term.