Fund’s Strong Performance

Most of us would agree that in determining which investment products are suitable for us, we look at their track records. In this example, let’s use mutual funds as an illustration.

First, we should remember that what happened in the past is no indicator of what’s going to happen in the future.

I’ve read about this a few times and I’ve experienced this phenomenon myself as well. Usually, what’s at the top of the ladder this year might not perform so well next year. Though this could be wrong, it is actually what generally happens.

For example, last year in Australia, Listed Property Trusts (LPTs) were some of the best performers in the stock market. This year however, they’re not doing so well.

No funds can sustain high returns every single year. Earning 80% returns per annum is not sustainable. The markets might perform really well during a bull market but under-perform during a bear market. Even for the world’s best investors like Warren Buffett and John Templeton. Over time, the returns of their investments averaged at around 14% to 32%. This assumes that the fund is not using any leverage whatsoever.

So, don’t get too hyped up when your unit trust consultants, your friends, or anybody else, tell you to get into a mutual fund just because they had recorded 80% rate of return per annum. This is not to say that these funds are bad investments, it’s just that you need to exercise caution. You need to do your research a bit further. Know what the fund is investing in and what is their investing style.

One more thing, usually, one year track record is not really a good indicator. It might be a bit biased because of the recent bull run in the market. What’s best to look at is how the fund has performed over the years. Look at the rolling return or in other words, look at its average return over 3 years, 5 years, or even longer. A fund could record a return of 80% last year but its rolling return over 10 years could be only 10%.

All in all, do your research well. Understand what you’re doing.

Knowledge is key.

P.S. This post is not aimed to discredit anybody at all.

About nadlique

This blog is about the journey of a 28-year-old Malaysian towards financial freedom. This blog was started back when the blogger was 21 years old. However, his journey towards financial freedom had begun way before that. Materials such as investing, business, entrepreneurship, equities, and real estate are presented. The author also posts his thoughts and observations on life in general.

Comments

  1. Good work you have done here. I failed my CUTE exam long time ago and never bother to take it again and I dont buy/invest in Unit Trust but I am thinking to buy unit trust from Public Mutual next year.(Missing this 21 day intial offer period on China Islamic Fund 20 Nov – 10 Dis 07.)

  2. Hi..

    nice blog.you have started investing at a veyr young age..i am sure you will be financially free in less than 9 years. i know about investing after sometime so now, i have started investing for my yet to be born baby.keep up this good blog

  3. Kate: Thanks Kate. What’s a CUTE exam? It is an exam for unit trust consultants? Good luck with your unit trust investments! Do share with me on how it goes later on 🙂

    Denna: Thanks Denna. Thank you also for visiting my blog. I surely hope I can be financially free in 9 years 😉
    It’s good to hear that you have started investing for your yet to be born baby. Really hard these days to find people like that! 🙂

  4. CUTE stand for Computurised Unit Trust Examnination conducted by Federation Of malaysian Unit Trust Managers.And to be unit trust agent you must pass the exam.

  5. I see. Thanks for letting me know 🙂

  6. Any vehicle with sustained high returns that is open to public investment will be driven to lower returns by market forces. Suppose a unit trust is returning 80% and shares cost $100. As people clamor to get in on such a good deal they will bid the price above $100. If it reaches $200, the return calculates to be 40%. ((I am ignoring the effects of risk and also holding the return constant.))

  7. i want to know the exact figure of total bumiputera invested in ASNB as well as non bumiputera.

  8. Hi there dyaedd,

    To be honest with you, I wouldn’t have a clue on the exact figure of the number of bumiputera and non-bumi investors of ASNB.

    Sorry I couldn’t be much of a help.

  9. Why is it important/interesting to know bumi vs non-bumi totals? (Ringgit totals?? Number of people??)

  10. Now that I think about it, I have a derivative question: What is the ringgit amount per bumiputera investor vs the ringgit amount per non-bumi?

  11. I was thinking of the same thing as well.

Trackbacks

  1. […] Tolerance Level – Risk Tolerance Level: Part 2 – Back to Basics: Recovering from Negative Returns – Fund’s Strong Performance – CFD Trading : An Introduction – The Importance of Cash […]

  2. […] Understanding Unit Trust – Fund’s Strong Performance – Stock Market Behaviour: What’s up with Wall Street? – Currency (FOREX) Trading – Risk Tolerance […]

Speak Your Mind

*

Return to top of page

Copyright © 2019 · Faliq Fauzi · Log in