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The 2016 Results

Remember last year from an investment market point of view?

  • 2016 starts with the worst opening 2 weeks in the history of the S & P 500
  • Markets recover to be ahead by end of March
  • Brexit will not happen they said ….. Brexit happened!
  • Markets slid 15% on the morning of Brexit only to close -5% on the day
  • Markets recovered over the following couple of months
  • Trump will not get elected they said ….. Trump got elected!
  • Markets surge on Trumps election and fund managers everywhere continue to scratch their heads

Of course, there were lots of other things affecting markets throughout the year but the events outlined above show what a topsy turvy year it was. This type of environment should be fertile ground for the active fund manager. The active fund manager can make calls along the way to take advantage of what is happening in the markets. So, one would safely assume that the active managers outperformed the passive managers in 2016, right? Wrong!

If we take some of the funds available to Irish investors, the results make very interesting reading. For illustration purposes, I have outlined some of the companies who offer risk adjusted active and passive funds:

  • Friends First – Magnet (active) & Compass (passive)
  • Standard Life – My Folio (active) & MyFolio Market (passive)
  • New Ireland – Prime (passive) & iFunds (active)

The table below illustrates that in each case, the passive funds outperformed the active funds.

FF Magnet Stable (active) FF Compass Stable (passive) SL Active MyFolio III (active) SL MyFolio Market III   (passive) iFunds 4 (active) Prime 4 (passive)
Quarter 1 -0.69% -0.34% -2.29% -1.87%  -0.5%  n/a
Quarter 2 2.37% 2.18% 0.46% -1.21%   2.4%  n/a
Quarter 3 1.45% 1.41% 2.54% 4.15%   1.2%  2.6%
Quarter 4 3.00% 3.37% 1.28% 2.95%   2.4%  4.7%
2016 Return 6.14% 6.52% 2% 4.02%   5.5%  7.3%

Notes:

  • We have taken the ESMA risk level 4 funds as our example
  • The New Ireland Prime Fund was only launched in April
  • Past Performance is not a guide to future performance
  • There are no guarantees associated with any of these funds
  • The value of your fund can fall as well as rise

Summary

There will be lots of times that an active fund manager will outperform a passive fund manager. However, our research tells us that the passive fund will outperform over the long term (10 years plus). Nobody knows how markets are going to react. You don’t want to take unnecessary risks with your pension and investment fund. What you want is first and foremost a financial plan and that should guide most of your investment decisions.

There will always be the guy who outperforms the market. He’s often on the bar stool on a Friday night extolling the virtues of a particular share that he bought. This is not skill! This is luck! This guy probably knows the name of the horse that is going to win the Grand National this year….

Metis Ireland has a passive bias to investing. That is not to say that we rule out active fund managers altogether. There are a few excellent examples of Active Managers who consistently outperform the markets – Zurich in Ireland is a great example. However, passive investing helps:

  • Reduce Costs
    • It’s cheaper to track the market than stock pick
  • Improve Discipline
    • Avoid Emotional Investment Decisions
  • Stick with the Plan
    • Your financial plan should guide your investment decisions (not the other way around!!)

 

Talk to us about creating a Financial Plan for you. Only then can you decide what type of investment fund is appropriate for you.

Carl Widger
Director & Co – Founder

Disclaimer

Metis Ireland Financial Planning Ltd t/a Metis Ireland is regulated by the Central Bank of Ireland.

All content provided in these blog posts is intended for information purposes only and should not be interpreted as financial advice. You should always engage the services of a fully qualified independent financial adviser before entering any financial contract. Metis Ireland Financial Planning Ltd t/a Metis Ireland will not be held responsible for any actions taken as a result of reading these blog posts