View more on these topics

FE Adviser Fund Index

Following last week’s FE Adviser Fund Index article on investment timeframes, it is worth digging further into the performance of the three benchmark portfolios over three and five years.

One surprising statistic is that despite the difficult market conditions between March 2007 and 2009, the ratio of negative to positive weeks does not seem to change overwhelmingly between the different timeframes. Looking at the aggressive index, for example, the negative to positive ratio over five years is roughly 4 to 5, while over three years it is closer to 2 to 3.

This means that over the past five years there would have been an average of 23 weeks of negative performance and 29 weeks of positive performance. This compares to 21 negative and 31 positive weeks a year, on average, over the past three years.

Despite the relatively similar ratios, the performance outcomes are radically different. The aggressive index returned only 18.13 per cent over five years, whereas it returned 59.44 per cent over the past three years.

This demonstrates the high degree of market volatility the portfolios have endured in recent years. The difference in performance can be attributed to the fact that during the negative weeks between March 2007 and March 2009, the portfolios fell considerably more than during negative weeks in the following three years.

It also shows the picture is not as clear cut as investors would hope. There were 52 weeks of positive performance over those same two years of heavy falls, suggesting there was still money to be made for the active investor.

Unfortunately, the financial crisis meant performance of the three AFI portfolios differed more on upside than the downside. In the two years to March 19, 2009, the aggressive, balanced and cautious indices fell by 25.91 per cent, 24.46 per cent and 22.25 per cent respectively. However, in the three years from that date they have rallied by 59.44 per cent, 50.35 per cent and 42.71 per cent. This illustrates once again the importance not only of headline performance figures but how these numbers were achieved.

Rowan Dartington head of collectives research Tim Cockerill says: “Invariably, investors would not have bought into the market at or even near its lowest point. But hindsight colours things and it is that dynamic that allows people to focus on the three-year numbers.”

The old debate about investor time horizons remains as pertinent as ever. The returns of the past three years are unlikely to be repeated, while risks to the global recovery have also been growing. Advisers tempted to push stories of stellar short-term returns should tread carefully. Managing expectations during bull markets is just as important in retaining clients as protecting their capital when markets turn. Nothing erodes trust quicker than a promise unfulfilled.

Data supplied by FE


Finance Bill confirms Budget changes

Legislation to bring in the tax measures set out in last week and last year’s Budgets has been published by the Government. The bill’s explanatory notes set out the cut in the top rate of tax to 45p from April 2013, reducing the level at which individuals start paying the 40p tax rate to from […]

Isle of Man provider to de-register 50c Qrops after HMRC rule change

Pension provider Boal & Co will temporarily de-register its Trinity Qrops after it became clear the Isle of Man will fail to adapt its 50c legislation in time for the HM Revenue & Customs deadline next month. Final rules published by HMRC, which will come into force on April 6, include requirements for Qrops providers […]

Nearly 30% of UK adults don’t understand stocks and shares Isas

A survey by Barclays has discovered that 29 per cent of UK adults have no understanding of how a stocks and ISA works. The results also show that just 6 per cent of 18-24 year olds actually have a stocks and shares ISA, despite 26 per cent of respondents claiming they would consider setting one […]

john howard

How the FCA plans to get retail banks to toe the line

The recently published retail conduct risk outlook from the FSA is the first major publication from the regulator with Martin Wheatley’s signature on it. Wheatley will head the new regulator, the Financial Conduct Authority, in about a year’s time. As the outlook is the FSA’s view of potential dangers up to 18 months ahead, does […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm