Clearly the performance record of growth of a fund is of great interest. But what counts as good investment fund performance? In fact a fund’s track record over one, two or three months is of little interest to the medium-term investor.
Here, Moneycube explores what really matters when looking for a strong-performing investment fund in Ireland.
The past is done
Yes, it’s important to find a fund which has a solid record of delivering in line with its investment aims over the long term. Ideally you’ll be able to look at how a fund has performed through a couple of bear markets as well as good times.
But investors put their money into a fund for future success, not past achievements. So what has created strong investment fund performance in the past? And will that be enough to drive future gains?
Getting under the bonnet
Answering these questions means digging into a fund’s underlying investments and future plans. Put very simply, does the fund own shares in companies with strong future growth prospects, or is it tied up in yesterday’s lumbering giants?
And if it’s invested in as-yet unproven businesses, has the fund manager placed the right bets?
At Moneycube, we work through these questions to recommend funds with strong prospects to you. (You can read more on our view of the changing fortunes of big tech here, for example.
Performance is relative
Looking at a fund’s performance figures on their own doesn’t tell you much. You’ll want to compare them to an appropriate benchmark, such as funds that target similar levels of volatility (investment ups and downs), or an index such as the Eurostoxx 50 top Eurozone businesses. The fund’s return over and above a certain benchmark – to ‘beat the market’ – is known as alpha.
Volatility is the suddenness with which an investment fund can jump up or down. The long-term investor can afford to tolerate higher levels of volatility, in the hope of higher investment gains.
When evaluating investment fund performance over a period, it’s important to take account of the risks investors faced to generate those returns.
Typically, funds will target an annualised volatility range – for example, between 5% and 10% – to help investors form a view on a fund’s likely ups and downs.
Measuring investment fund performance is about more than looking at headline growth percentages. That’s why Moneycube looks at a range of measures to recommend appropriate funds to our investment community.