More than twice the average fund’s return? Or perhaps an extra 190%? All using a simple process? That is what is possible using our Vintage fund ratings, a great resource for investors. Here we review the latest funds and portfolios from the Vintage update for July 2020.
We believe you should have the opportunity to invest in the best possible funds. You will already be aware of our
Dynamic Fund Ratings. If you aren’t have a look
here. In this blog we take a look at the BIG problem for investors, what makes a good rating system and how our
Vintage fund selections work exceptionally well for investors just like you.
The BIG problem facing investors
Both our Dynamic and Vintage Ratings are designed to solve the BIG problem facing investors.
Most funds simply are not good enough.
92% of funds fail to beat our straightforward long-term performance benchmark.
Our Vintage Ratings solve that problem. They identify the small number of funds which consistently perform better than the other funds in their sector. In other words, those consistently providing you with more growth.
This has real consequences. In the UK All Companies sector, 69% of investors’ cash is languishing in Ugly funds whose average 10-year performance is less than half that of the Vintage funds in the sector ().
Summary
For this edition of the Vintage Report analysed 1,929 funds. Of those:
- Only 8% (157 funds) are good enough to receive a Vintage Rating.
- 92% of funds are Mediocre or worse.
- Ugly funds (those consistently in the bottom two quintiles) make up 57% of the funds analysed.
That’s £1,291 BILLION invested in funds that are mediocre or worse.
We believe you should have the opportunity to invest in the best possible funds, as the benefits to you can be huge. That is our BIG focus as a firm.
What Are Vintage Ratings?
Our Dynamic Fund Ratings look at shorter term performance over the last 6 months. In contrast, Vintage Fund Ratings consider the longer-term consistency of a fund.
The key differences are:
Dynamic Fund Ratings:
- Exploit opportunities derived from shorter term momentum.
- 6-monthly review periods and a high turnover of funds at your review points.
- In this case, we don’t care whether the fund manager is skillful or lucky, we just want to piggyback on their current performance.
Vintage Fund Ratings
- Tell us more about the quality of a fund manager derived from 10 years’ worth of data.
- A high rating suggests the fund manager is more skillful than lucky.
- These funds are reviewed every year, but turnover should be relatively low at your review point.
What Makes A Good Rating System?
Our view is that any best-buy list or fund rating system must be supported by a tight process. More precisely, these are the must-haves for an effective process to identify outstanding funds:
- Straightforward to identify top-rated funds.
- The underlying process must be objective, clear and understandable.
- It must be easily repeatable.
- There must be a volume of long-term evidence of it generating extra growth.
These are straightforward requirements and our Vintage Ratings meet these criteria.
These ratings are not seat of pants – they are objective.
It is not fund recommendation by proclaiming "because I'm an expert".
There is no scope for Vintage Ratings to be skewed by fund managers with a good story.
Our Vintage Ratings are both objective and measure long-term quality.
Where Did Vintage Work Well?
Using Vintage Ratings to select a portfolio of funds, reviewed annually in July, worked very well in sectors such as Global, Europe ex-UK, UK All Companies and UK Smaller Companies. The top 5 Vintage portfolios with the biggest outperformance vs. the sector average since July 2004 are shown below.
These portfolios are created by either selecting the single best fund (Top 1) or the top 3 funds (Top 3) based on their Vintage score.
- Vintage Global – Top 1 is the best performer, returning over twice the performance of the sector average as well as the highest total return.
- Vintage Europe ex-UK – Top 1 is second in the table, based on extra growth vs. the sector average (219% extra). It is the third best portfolio total return, up 465%.
- Vintage UK Smaller Cos. – Top 3 follows closely behind, returning 490%, which is 190% more growth than the sector average.
- The two UK All Companies Vintage portfolios round out the top 5, ahead of the sector average by 150% and 180%.
Table 1: Vintage Portfolios – Best 5 from 2004 to date
| |
EXTRA growth
|
Portfolio total return
|
Sector avg total return
|
|
Vintage Global - Top 1
|
265.7
|
526.4
|
260.6
|
|
Vintage Europe ex-UK - Top 1
|
219.7
|
465.1
|
245.4
|
|
Vintage UK Smaller Cos. - Top 3
|
190.1
|
490.5
|
300.5
|
|
Vintage UK All - Top 1
|
180.0
|
340.9
|
160.9
|
|
Vintage UK All - Top 3
|
150.8
|
311.7
|
160.9
|
(Performance 1/7/2004-1/7/2020)
You can find more detail on these sectors by following the links below:
Where Did Vintage Struggle?
Out of 37 Vintage portfolios, only 7 failed to outperform the sector average.
Both Japan and Global Bond portfolios fell behind. UK Equity Income (Top 3), Sterling Corporate Bonds (Top 3) and North American (Top 1) portfolios also underperformed the sector average.
We have found that our
Income Tool is a better way of selecting funds in the UK Equity Income sector. Prioritising consistency of payout growth also tends to result in higher total returns.
We have
noted elsewhere how difficult it is to outperform in the North American stock market, so it isn’t a surprise to see a
Vintage portfolio lagging in this sector.
In summary, Vintage fund ratings are a great resource for investors that do not want to review every 6 months, and you can see from these numbers that the results are impressive.
But remember, you should not adopt a “buy-and-forget” approach with these funds (or any of your investments) because inertia is one of the biggest roadblocks to you making best possible gains.
There is much more detail included in the full report, which Gold Members can
download here.
Do let us have your feedback!
FURTHER READING