Time and again, it is emphasised to investors that past performance is no indication of future performance.
We all know this to be true.
But we also know it’s easier to recommend a fund where the chart goes from bottom left to top right and not the other way around.
Recommending someone invest in a well performing fund that does badly is easier to explain than advising a client to invest in a fund with a poor track record that fails to recover.
So that might go some way to explaining why an Aegon survey found that the past performance of a fund is now an even more important factor for advisers than it was two years ago.
More important
The survey of 250 advisers asked them to select up to three factors they take into account when assessing funds.
Topping the list again was past performance, with 63% citing it as a key consideration.
This compares with 49% when the survey was last done in 2017.
Stay aware
Aegon investment director Nick Dixon said the change is “understandable”, as advisers want to see a strategy can “deliver on its objectives”.
But “one implication of the focus on past performance is that the market may be slow to respond to change or the advent of new approaches”, he added.
“Advisers who focus on past performance should also be aware of any changes to a fund’s process, structure or management. Market conditions can also have an impact – a fund that has done well in the protracted bull market of recent years might struggle were market conditions to falter.”
Money matters
When the survey was completed in 2017, just 29% of advisers cited cost as an important factor.
This nearly doubled to 55% in 2019.
“Fund costs are clearly front and centre in advisers’ minds and this reflects a number of trends, including the growing use of passive funds, regulatory pressure on fund managers to justify costs and consumer demand for low-cost investments,” Dixon said.
“Prioritising cost doesn’t necessarily mean choosing the cheapest fund available, but it does mean that where a fund comes with an additional cost, there is an assessment made that this cost brings with it the prospect of benefit to a level that justifies any additional fee.
“For example, such benefits might include the potential to improve investment growth or reduce volatility, or might mean that ethical considerations are met.”
Retreating priorities
In contrast to cost and past performance, there were three factors that advisers viewed as far less important than in 2018.
They were; investment strategy and ethos, robust investment process and fund objectives.
| 2019 | 2017 | |
| Past performance | 63% | 49% |
| Cost | 55% | 29% |
| Investment strategy and ethos | 36% | 49% |
| Robust investment process | 35% | 49% |
| Asset allocation and top holdings | 31% | 33% |
| Fund objectives | 25% | 47% |
| Fund manager credentials | 21% | 24% |
| Awards and ratings | 16% | 14% |
| Provider’s brand | 6% | 4% |
| Other | 2% | 2% |
Advisers could select up to three factors
