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;

Question 1

Consider the following;
a) done relatively better than its benchmark
b) done relatively worse than its benchmark
c) performed relatively inconsistently
d) none of above

Question 2

 

Consider the chart, has Fund B for the majority of time

a) done relatively better than its benchmark
b) done relatively worse than its benchmark
c) performed relatively inconsistently
d) none of above

 

Answers

Question 1

From the limited information available this is difficult to determine but if you do the maths it is fairly clear that d) is the correct answer. The fund has outperformed in the most recent year. Prior to then it performed in line with the benchmark. The actual annual discrete returns are below

Annual Return	Y1	Y2	Y3	Y4	Y5	Y6	Y7
Fund	13%	20.1%	5.8%	-14.7%	17.8%	12.2%	12.9%
Benchmark	3%	20.1%	5.8%	-14.7%	17.8%	12.2%	12.9%

Question 2

Though d) is very close, the actual answer is b). Despite outperforming heavily in 2009, Fund B has persistently underperformed during all other periods. A single blockbuster year can severely distort long term charts presented this manner.

 

Discrete Annual Returns	Y1	Y2	Y3	Y4	Y5	Y6	Y7
FTSE All Share TR in GB	-29.9	28.8	14.5	-3.5	12.3	20.8	1.2
Fund B	-30.2	49.1	14.0	-4.7	11.0	19.7	0.2

Apologies to those who feel I've been a bit cheesy with these questions. They are tricky and it is so easy to jump to conclusions. Understanding how these quirks can distort your thinking can prove invaluable however.