Are your funds in the relegation zone?
Tuesday, 26 June 2007
Results shock for former top performers. By Stephen Ellis of The Telegraph on June 23 2007. Full story here
"Thousands of investors have a total of more than £8bn invested in funds that were top of their sectors three years ago but which have since slipped into the relegation zone.
Falling funds: unit-holders 'should act more like owners and less like fans"
This article uses the football analogy by saying “If a football team stops scoring goals and winning games they fall down the table and will eventually be relegated automatically. In finance the responsibility is your own.”
Whilst investors can compare various fund manager and be pleased if they choose a fund at the top of the league or jump ship by selling out of a poor performing fund, it is important to understand why a fund performs or fails to perform.
The football analogy continues. All these teams (fund managers) jockeying for position are actually all members of the "The Championship League". They are not in "The Premier League".
The question is whether you, as an investor, want your investment managed by fund managers in The Premier League or The Championship?
I accept an investor will find it difficult to know the difference, but start with one point. Most actively managed funds in the UK fail to beat the market. Consistent performance by attempting to capture market returns therefore puts you in The Premier League.
Start by reading the evidence and then make good investment decisions. After all, even if you are middle of the table of The Premier League, its way better then top of The Championship. Happy investing..
Categories: Active Fund Management, Index
posted by Murray Round Wealth Management @ 20:52,
KKR eyes up stock market after success of rival's $4.1bn float
Writes Tom Bawden in New York for The Times Newspaper.
"The race to follow Blackstone on to the public market began yesterday as it emerged that Kohlberg Kravis Roberts (KKR) had appointed Morgan Stanley and Citigroup to prepare a flotation.
Although KKR has not made a firm decision, the buyout group came closer to pushing the button on its own initial public offering (IPO) yesterday as Blackstone's shares soared by as much as 24 per cent in their first morning of trading. " Full story
I must admit to a slight wry smile about this story. Why? A private equity company going public...!! when investors are clamouring to invest into private equity for high returns. Of course it's not a case of the pot calling the kettle black, but extraction of the wealth by the owners of KKR through a public offering allows an exit strategy for them.
Maybe if the owners don't have the energy or commitment that they once had, then a public sale offers an opportunity to capitalise on past success. Investors however, want future success. Only the future will tell us how successful this Private Equity firm will be.
My best wishes are to the owners, in fact, why shouldn't company owners seek to conserve their wealth and create a succession strategy. Perhaps they need a wealth manager. I know a good one!
Categories:
posted by Murray Round Wealth Management @ 20:50,
130/30 funds...a sure fire way to wealth?
“The numbers 130/30 will not mean much to the average investor, but funds based on this ratio are tipped to be the next big thing in UK investment” says Daniel Thomas of the FT on June 23. Read more here.
“At their simplest, 130/30 funds can be regarded as a halfway house between an equity fund and a hedge fund. 130/30 funds allow managers to buy stocks that they think will go up in price for the bulk of their holdings, but also to sell "short" the stocks they do not like.
A number of fund management groups have in recent weeks announced plans to launch these funds.
130/30 funds have already taken the US, Japan and Australia by storm. In the US, it is estimated that more than $50bn has been invested into such funds.
Their popularity is founded on an ability to make additional returns above a traditional fund.”
Here we go again...the next magic formulae to generate above returns for investors. Let me first explain that these are actively managed funds. They seek to take on extra risk to achieve out-performance. If they get it right, then there is no doubting the results. However, how does an investor know which fund to choose? When to buy? When to sell? And how can they define the risk they are taking?
In truth, as an investor you might get lucky when you choose one of these funds, but the odds are against you. By all means gamble with part of your portfolio and be prepared to lose but try not to see these funds with rose tinted spectacles, instead focus on staying in the market and don’t make mistakes. They should not form a large part of your portfolio.
Categories:
posted by Murray Round Wealth Management @ 20:36,
Index prophets part company on ETFs
Monday, 18 June 2007
On June 25, 2007 John Authers of the FT discussed a boxing match between two index heavyweitghts..well not quite a boxing match, but intellectually maybe!
"Jack Bogle and Burton Malkiel are the two arch-prophets of indexation. Nobody has done more to ram home public understanding of the rationale for passive investment, or to make it a reality by offering index funds to the masses" Read full article
I keep reading John Authers of the FT because I like the articles. This is yet another insight into the world of index linked mutual funds and Exchange traded funds. These two heavyweights are arguing about a fringe issue of indexing, but both believe the index funds are better for investors over time.
I do of course appreciate that even though these two heavyweight names have presence, most investors, and for that matter, many advisers, these two famous names might just as well be Mr Jones and Mr Smith. But many is a serious business and when its your money, it is very serious. As such, if your advisers don not really know anything about these heavyweights, you may need to question how serious they are about your money.
Categories: Index Funds, ETF's
posted by Murray Round Wealth Management @ 20:46,
European funds missing targets...
Sunday, 17 June 2007
...says Steve Johnson of the FT on June 25 2007.
“Every single absolute return fund rated by Standard & Poor's failed to hit its return targets after fees last year, with most funds failing to even match the returns of cash.
The data call into question the future of the nascent sector, which has attracted an estimated €200bn (£134bn) of assets across Europe since the first fund launched in 2003.” Full article here
There is a comment in this article by one fund manager who states 'nobody is doing brilliantly well.' Unfortunately, I have to disagree with that comment. The absolute return managers are doing brilliantly well on your money. Time after time the evidence of poor performance is clear to see but the picture is often distorted when 'brilliant' returns are achieved. Such returns look bright for only a short time but the memory of them keeps investors hoping.
Wherever possible, keep taking your thoughts back to basics before you invest. Remember that over time most funds do not beat the market. The title of this headline "European funds missing targets...is confirmation of this statistic.
Categories:Active Funds, Fees
posted by Murray Round Wealth Management @ 20:40,
Everything you ever wanted to know about private equity
Find out the answers to some of your questions to private equity here...courtesy of The Times.
What is private equity?
What is the difference between private equity and venture capital?
Where did private equity come from?
How do private equity firms fund their purchases?
What happens to the debt when the company is taken over?
The answers...Click here
Categories: FAQs
posted by Murray Round Wealth Management @ 09:28,
Hedge fund bullies…
Saturday, 16 June 2007
I read with interest an article on Hedge fund activists. It’s a story that captured my thoughts following Anthony Boltons comments...see here
Whilst I have a number of issues regarding investing into hedge funds and the lack of transparency, I am certainly not anti the 10% of these activists. What do we mean by activist? Wherever possible the activists seek to own a small percentage of shares in the company where they want to see change. As the article by David Katz says
“Their aim is to boost the stock price by pushing for a strategic move such as a spin-off or sale of assets, a large buyback or dividend, or a change in management. They can make life miserable for CFOs and other executives as they promote their agendas. Members of the new activist club are garnering reputations as aggressive, often successful, gadflies. In most cases, however, activist investors like to operate behind the scenes, working with management to encourage change. “Our goal isn’t to get into a fight,” says Phillip Goldstein, founder of Bulldog Investors, an activist hedge fund manager. “It’s to try and make money.”
It is important for the management of these large public companies to remember they are often owned by institutions, who in turn have thousands of individual investors. In other words, you and me. They need to focus on returning profits to us as shareholders first before feathering their own nests. If activists investors are making life uncomfortable to some management, maybe its because they deserve it…maybe they have become too self important and have forgotten whose money it is and for whom they are making a return on capital. The shareholders.
In an ideal world, I would like to see the hedge fund managers using their own money and take the risks themselves rather than encourage private investors as the average returns are not significant. Yet inevitably, the investors tend to be drawn to these success stories of the relatively few making above the market average returns.
Categories: Hedge Funds, Active Funds
posted by Murray Round Wealth Management @ 10:07,
It's time to point the finger at the index
Friday, 15 June 2007
What is an index? The question is sundering the world's fund management community. John Authers from the FT Published his article on May 26 2007. He says "An index is a measure of the market. It is built by taking the stocks in the market, and aggregating their performance. Not all stocks are the same size, so you must decide how to weight them. The most logical way to do this is by their market value - what they are worth according to the market.
This has applications for investment management. Most managers fail to beat their index. So, don't beat it, join it" For the full articles, go to the FT here
The discussion is focused on fundamental indexing versus traditional indexing. Irrespective of the differences, the issue as always, is can active retail funds, which most investors buy, outperform the indexes?
There is enough evidence to say no. In fact, mathematics tell us so. Want some evidecne, visist Bill Sharpe and he will explain. Click here
So why invest in active funds then? The margins for the fund managers and the salesman are high enough to make it worth their while. But bear in mind, if mathematics tells us that over time they do not outperform, guess who pays these healthy margins to the fund manager and the investment salespeople…the poor investor. We like to give our clients ever chance of increasing their wealth and high fees erode wealth.
In John's final paragraph, he says "...And there is no need to be ashamed about a "value" style. Funds allocated this way provide rigorous quantitative protection against the temptation to buy stocks for more than the fundamentals suggest they are worth. That is always a good idea. As long as their costs stay under control, these funds deserve a place, with market cap-weighted indices, as the bedrock of many portfolios."
I couldn't agree more. Lets all take a common sense view and protect our wealth and not divest to the active fund managers!
Categories: Index Funds, Asset Class Management, Active Funds
posted by Murray Round Wealth Management @ 21:45,
Bolton attacks Cadbury split in face of activists
Thursday, 14 June 2007
Anthony Bolton, Britain's most-feted fund manager, has attacked Cadbury Schweppes' decision to split its operations after pressure from a hedge fund, saying it "could represent a come-on to every corporate raider or activist investor".
Mr Bolton, the Fidelity fund manager who has led some of the most high-profile investor battles with managements in recent years, says the events at Cadbury could change the investment landscape, "altering the relationship between shareholders and the companies in which they invest".
"I don't think the relationship between UK companies and their shareholders will ever be quite the same again," Mr Bolton writes in a column today in the Financial Times writes Tony Tassell of the FT on June 11 2007. More at FT
I find this an interesting story. Why?
I am not anti the activist hedge fund investors who appear to be stirring up management of some of our public companies, especially when so many institutional shareholders may not use their rights as shareholders to influence management. I think shareholders must use their rights. Remember that it is the shareholders that own the company not the management. It is the shareholders that carry the risks and they should be entitled to a return on their capital. Management with their sometimes excessive remuneration structures, have a duty to their owners. A point that John Bogle highlights in his book The Battle for the Soul of Capitalism
I fear sometimes that fund managers as proxy owners for many thousands of investors must use their powers more often as these activists have done to bring the focus back to shareholder power rather a quasi abdication to management.
Categories: Philosophy, Hedge Funds
posted by Murray Round Wealth Management @ 21:44,
In Australia, a Hedge-Fund Rocket
Wednesday, 13 June 2007
The Wall Street Journal had this article by Laura Santini about the IPO of an Australian Hedge fund. What is interesting is whether investors invest in hedge funds or the IPO of the hedge fund!
“As investors around the world clamor for a piece of the big hedge-fund and private-equity companies going public, an opportunity has surfaced in Australia, where Platinum Asset Management's newly listed shares shot up 76% on their first day of trading.” Read here for the full article
Shareholder enthusiasm for these IPO’s reflects the expectation that companies will expand the pool of fees by increasing fees or raising larger assets to manage. Clearly it makes sense to invest into a profitable business. But the profits are paid in fees from investors! Another point is made..."investors in the share capital rather than the fund are not caught through the redemption risk. In other words, the shares of the hedge fund company are more liquid than the investors!
But the hedge funds will say, its not about fees, its about performance. That's true but at what risk? If its all about performance then, surely the proof of the pudding should be in the eating...maybe not...The Credit Suisse Tremont hedge fund index gained in the US 5.4% this year, while the S&P 500 stock index increased by 8.3%. The UK FTSE 100 gained 7.3% and Australian market benchmark jumped 12.4%. Where is the so called out performance?
We have concerns about the future prosperity.
If stocks decline through a market downturn, then these hedge funds on average are likely to see major falls with the potential for investors to abandon ship. Be very careful with Hedge Funds. They are great news for the fund managers but for investors...make you own mind up.
Categories: Hedge Funds
posted by Murray Round Wealth Management @ 21:46,
A great investor with a centuries-long horizon
Tuesday, 12 June 2007
Yet another article written by John Authers of the FT deserves comment.
John starts his article "Yale University is a privileged institution. Its graduates go on to great power. George W. Bush was educated there, as were his predecessor Bill Clinton, his father George H.W. Bush, vice-president Dick Cheney, and the man he beat in 2004, Senator John Kerry. An Ivy League institution, it has long been one of the world's most prestigious universities. But maybe its greatest privilege is to have the services of David Swensen as the manager of its endowment fund.
When he took over the endowment in 1985, it was worth slightly more than $1bn. By June 30 of last year, it had reached $18bn. The best performing US endowment in that time, it has easily beaten the S&P 500 over that period, with staggeringly low volatility." Read the rest here
Without doubt, that's impressive. If you get a chance to read the article in full, I suggest you do so. Lets analyse some of the points below.
Swenson says “investment managements is a simple business…it comes down to two principles. First equities are best for the long run…second, diversification is important”
I could not agree more. But getting your exposure to equities in the right balance needs thorough analysis but without doubt history has shown there are dividends (excuse the pun) to be paid over time if you do get it right. Moreover, thorough diversification is vital. 50 or 80 stocks by the way is not thorough diversification which some active managers think is diversification! Then Swenson says “…if you are in the category which most investors find themselves, where they aren’t set up to make quality active asset allocation decisions. They should manage their portfolio passively through low cost index funds”
If that philosophy is good enough for Swenson, who, in investment terms has been there and done it, then it should be good enough for most investors. We accept active management can work, but it relies on investors picking the fund manager in advance but frankly, this is highly improbable.
I was also interested in Swenson’s decision to buy equities after the 1987 crash which in hindsight was great timing. The question is however, how did Swenson know when to buy? My guess he was fortuitous. But this leads us to the question of chance or luck in investing. If Swenson or other fund managers, like Anthony Bolton in the UK, do not find replacements who can do equally as well in performance by transferring their unique skills, they may have to admit they had good fortune. Admitting to luck however undermines their skills, but come on ladies and gentlemen fund managers, admit your luck sometimes! Lets encourage openness and transparency.
Categories: Index Funds, Diversification, Asset Class Management
posted by Murray Round Wealth Management @ 21:46,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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