Broomer's Blog

From the category archives: Performance

Performance

When It’s That Time of the Month Again

I have the pleasure of sitting next to Charles Hovenden, who has an excellent record of running absolute return products. Charles is a delightful colleague, engaging, thoughtful and entertaining in equal measure. However, towards the end of each month he becomes more withdrawn, anxious and well let's say just a bit crotchety.

2018 was not a good one for absolute return strategies and for many active managers in general, as markets became increasingly driven by momentum. This is not unusual in a mature bull market but nevertheless it makes it no less difficult to come to terms with. Clients rarely recognise such subtleties, elevating pressures as reporting periods approach and little wonder that portfolio manager tension builds towards the end of the month.

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One of the Few Promises that I Shall Make

I don't make many promises, but one promise I regularly make to clients is that I will not be calling the top or bottom of markets with accuracy. Every rule has an exception and I seem to have fluked calling the peak of the Bitcoin bubble with timing that can only be described as exquisite. I blogged in early December last year as the price rise turned parabolic about my fears for this market. This warning turned out to be within a couple of weeks of the top of the Bitcoin market. The price is currently trading around $5,500, a fall of 70% from the peak.

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So, how are we doing?

Our Managed Portfolio Service has just passed through its three-year anniversary. While we do not look to compete principally on performance, I was curious to see how our portfolios have done in relation to others.

In the below chart, we have added the fee adjusted performance and volatility characteristics of our longest standing volatility managed portfolio range. These portfolios (highlighted in orange) can be compared to funds in the IA Volatility Managed sector.

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The Dangers of Charts

Many people in the investment industry are competitive people. Over the years, I've noticed several managers use selective information to justify their positioning and win over their audience. On the occasions when I've been clever enough to spot this, I tend to leave in a bit of a huff. All in all, I am more impressed by those seeking the truths of a situation rather than scoring points with potential clients.

Charts can be a useful tool for snake oil salesmen. In one of my earlier blogs, I set a quiz that taxes even the most experienced investment professionals. Sometimes interpreting charts is not quite as straightforward as it might appear.

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Quiz – Interpreting performance information

Interpreting the output from most asset managers marketing departments always takes a little bit of care. Here's a fun little quiz to test your comprehension of some of the typical output generated by these teams.

These questions are much harder than they appear at first sight;

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