Pengana Capital is closing their Global Resources Fund, Fairfax Media reported yesterday. Given the five-year bear market in resources, this comes as no major surprise. What was interesting, however, was the timing of fund withdrawals. As of May last year, the fund had around $30m of assets; by January this year, this figured had more than halved. If you watch resources, you might notice that this is around the time that resources began to recover. Gold, silver, lithium, oil, iron ore, zinc, and more have all posted strong gains since January. This is supported by Dalbar’s annual report, which shows that equity investors consistently underperform the funds they are invested in - buying high and selling low. “In 2014, the 20-year annualised S&P return was 9.85%, while the 20-year annualised return for the average equity mutual fund investor was only 5.19%, a gap of 4.66%” On a $100,000, this equates to a $419,680 difference at the end of 20 years.
Steve Johnson
Fascinating stuff. I heard Kerr Neilson say something similar about his fund investors once. Has anyone done a broad study on the Australian market? We're probably self-selecting but our clients have historically put more money in during downturns.
Patrick Poke
Thanks Steve. I've not seen anything similar in Australia, but it would be fascinating to find out. It goes to show the importance of educating your investors.
Graeme Holbeach
Don't know about the sell low side, but I think marketing is a major reason why investors buy high. Fund managers advertise when they've got good figures, advisers find it easier to 'sell' the same funds and the press only run articles on the good performers.
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Jordan Eliseo
Great post Patrick (and comment Steve). The Dalbar reports are a must read. Thats the thing about volatility - investors should ride it out (or use it as a gift at times) but they just don't - locking in losses at worst possible times/overpaying etc.......if markets were easy though i guess it would be boring
Patrick Poke
Interesting perspective Graeme, I hadn't thought of that before. Thanks for commenting. Great point Jordan.