Chasing past performance is not such a good idea when it comes to investing. Investment markets are volatile by nature, and backing a winner based on last year’s returns is like backing ‘yesterday’s hero’.
Each year, several organisations hand out awards for the top performing funds from the previous year. The criteria for winning is based on various factors but all the awards tend to rely heavily on the performance from the past 12 months. While that might make the judges job easy, the sad reality for investors is that the award itself has no bearing on how that fund will travel in the years to come.
Take a few examples from past winners and their returns in the years following:
| Fund Name & Award | Fund Performance | Benchmark Performance | Difference |
| Allan Gray Australia Equity Fund Zenith Fund Awards 2014 Winner of Australian Equities Large Cap |
(to 2015 calendar end) -5.5% |
S&P/ASX 300 2.8% |
-8.3% |
| Perpetual Investment Management Zenith Fund Awards 2014 Winner of Australian Equities Alternative Strategies |
(2-year return to 2017 calendar end) 7.8% |
S&P/ASX 300 11.9% |
-4.1% |
| PM Capital Zenith Fund Awards 2015 Winner of International Equities Alternative Strategies |
(to 2016 calendar end) 3.1% |
MSCI World Net Total Return 8.0% |
-4.9% |
You’ve heard the jingle; past performance is not an indicator of future performance, and it rings true when it comes to chasing past winners.
What would be helpful is to know in ADVANCE which investments are going to outperform, but we all know that crystal ball doesn’t exist.
The key message is this – be wary of basing investment decisions on last year’s gold medalists, as they will most likely end up at the bottom of the scrap heap in the very near future.
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Disclaimer: This post has been prepared for general information purposes only. It is not specific advice to any particular person. You should consult an authorised Align Financial adviser before making financial decisions. Align Financial | Financial Planner Northern Beaches | Servicing North Narrabeen, Narrabeen, Mona Vale, Elanora Heights, Newport, Avalon, Palm Beach | Enquire with us online.