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Financial Happenings Blog
Friday, December 31 2010
One method of analysing the success or otherwise of an active fund manager is to look at their past performance history.  You would think that if a fund manager has done well in the past it will continue to do so going forward.  Unfortunately the evidence of persistent out-performance is very weak and can be explained by the laws of probability as luck rather than skill.

A famous example of when strong historical performance has not turned out well for investors is the Legg Mason Capital Management Value Trust.  For 15 years in a row to the end of 2005 the trust, managed by Bill Miller, out-performed the S&P 500 index in the US.  (Fund Manager Beats S&P for 15th year in a row )   You would think with this kind of track record your money would be well invested in this trust.  Unfortunately the last few years have not panned out so well.  In 2010, up to the 22nd of December the trust returned 7.08% compared to the S&P return of 15.14%.  This result put the fund in the worst 10% of its category (Large-blend) for the 4th year out of the past 5.  For the past 15 years, taking in 10 of those 15 consecutive years of out-performance to 2005, the fund has provided a 0.27% premium over the S&P 500 with a great deal more volatility. (Down in the dumps again)

You can do the maths on this, if you had of invested in the fund later into its record run, the index would be beating you.  If you had started invested in late 2005 you would be well behind.

This example provides anecdotal evidence of when following historical performance does not work.  We believe this is just more evidence to show the benefit of steering clear of the active fund manager / stock picker approach and rather focus on building a portfolio targeting particular asset classes in a low cost way according to fundamentals developed through scientific research.

Scott Keefer
Posted by: AT 11:40 pm   |  Permalink   |  Email
Wednesday, December 29 2010
Earlier this month ASIC launched an online calculator to assist mortgage holders work out whether it is in their interest to switch loans - Mortgage Switch Calculator

ASIC also suggest 4 steps to switching a home loan on their website - Switching Home Loans

Both resources are well worth a look for those considering moving to a new provider.

Scott Keefer
Posted by: AT 08:12 am   |  Permalink   |  Email
Wednesday, December 29 2010
The Australian Securities and Investment Commission (ASIC) last week released a findings report on the access to financial advice in Australia.  The report was compelling reading for us in the industry but also provided some discussion points for those tossing up whether to seek financial advice.  ASIC Access to Financial Advice Report

The report made the following key findings:
  • Cost of advice: A significant gap exists between what consumers are prepared to pay for financial advice and how much it costs industry to provide advice.
  • Scale of advice provided: Many Australians, particularly those who have never previously accessed financial advice, want piece-by-piece simple advice rather than holistic advice. Many advice providers still provide holistic advice as the default option.
  • Consumer perceptions that advice is out of their reach: Evidence suggests some people do not seek financial advice because they feel their financial circumstances do not warrant advice.
  • Consumer mistrust of financial planners: A lack of trust in financial planners to provide unbiased, professional advice limits the number of consumers who seek advice and the value they place on financial advice.
  • Access to general advice and information: The provision of general advice or factual information is less extensive than it could and should be. For many consumers general advice and factual information may be sufficient to meet their current advice needs.
  • Financial literacy: Gaps in financial literacy, especially among certain demographics and in relation to certain financial topics, limits some consumers’ engagement with financial matters and so stops them from seeking advice.
Since opening our doors in 2006, we have been working at addressing the issues raised by ASIC through:
  • Implementing a flexible fee structure with ongoing fees 1/2 of the average financial advice fee charged in the industry and minimal establishment fees.
  • Flexible advice offerings depending on client needs with a free initial consultation often being sufficient for many who knock on our door.
  • Through lower fee levels, making our services accessible to a much wider segment of clients.
  • Implementing a firm independent of product bias by not accepting commission payments nor ownership bias.
  • Providing a source of general advice through this no cost general advice website and our email newsletter service.
If you are interested in taking the first step to access great quality financial advice please get in contact for an initial consultation.

Scott Keefer
Posted by: AT 07:30 am   |  Permalink   |  Email
Sunday, December 19 2010
A recent study conducted by Morningstar in the US shows that low cost investment funds beat higher cost investment funds.  The report found that "for every single time period and data point tested, low cost funds beat high cost funds."

We always need to urge caution as historical returns are not good predictors of future performance, but these findings from Morningstar, who themselves run a service trying to rate and pick the best funds for investors, are pretty compelling.  This is just another piece of evidence to suggest that targeting a low cost investment vehicle focussing on what academic research tells us should provide above average performance makes good sense.

For those who are interested in the finer details of the study you can find them at - How Expense Rations and Star Ratings Predict Success - but you will need to sign up for Morningstar's free access service.

Scott Keefer

Posted by: Scott Keefer AT 10:00 pm   |  Permalink   |  Email
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