Google
RSS Feeds RSS | Views on ITInews | contact | terms of use | privacy 
 


Editorial Categories:

FINANCIAL SERVICES
ADVISERS & BROKERS
BANKING & BONDS
BUSINESS MANAGEMENT
COLUMNISTS
CONSUMER AFFAIRS
CRIME & FRAUD
ECONOMY & GLOBAL
EDUCATION & TRAINING
ESTATES & WILLS
HEALTHCARE INSURANCE
INDUSTRY & LEGISLATION
INSURANCE
INVESTING
LEGAL AFFAIRS
LIABILITY INSURANCE
LIFE INSURANCE
MARKETING
PEOPLE & COMPANIES
POLITICS
PROPERTY
RETIREMENT PROVISION
REVIEWS
ROAD ACCIDENT FUND
SHARES & UNIT TRUSTS
SHORT-TERM INSURANCE
TAXATION
TECHNOLOGY
VIEWS & LETTERS


Forthcoming Events:

No Upcoming Events


Available Recruitment:

No Vacancies Listed...


Save by getting insurance quotes


Your Editor, Brent WilsonInforming Consumers and Financial Advisors since 1988 | Click Here to Advertise
Seriously growing your money
Press Offices > Asset Managers

Foord Asset Management
Press Office Feature : Don't chop and change your investments

Company: Foord Asset Management
Author:Catherine Pate
Email:[email protected]
Posted:19 Nov 2015

 Email this article Comment on this Article  Print this article

Make a well-considered decision at the inception of the investment and persist with that decision

The powerful emotions of greed and fear mean that it is simply human nature to chase the best investment returns.

As a result, investors often fall into the trap of disinvesting from an underperforming fund to invest in one that outperformed over the same period.

However, studies abound on the folly of such an investment strategy.  

This is according to Adele Jankowitz, Head of Retail Investment for Foord Asset Management in Gauteng, who cites an example where a seminal US study(1) showed that frequent trading eroded investor returns by up to 2.7% per annum.  

Jankowitz provides a practical example of what chasing the best yields can do to an investors overall returns. 

Testing the effect of chopping and changing

“Given the investability of its benchmark, the FTSE/JSE All Share Index (ALSI), and the fund’s long, 13-year history, the Foord Equity Fund is ripe for testing the effects of a ‘chop and change’ investment strategy,” says Jankowitz.   

“Our analysis tested an alternative investment in the ALSI (investors are able to invest in any number of financial products that mirror the return of the ALSI)."

"In these analyses, investors were assumed to have considered the return in the immediately preceding period and then invested in either the fund or the benchmark for the subsequent period, depending on which had the higher ex ante return.” 

Jankowitz advises that several scenarios were assessed.
 
“First, a monthly strategy was followed in which the fund's return at the end of the month was compared with that of the benchmark."

"The investor was assumed to have ‘chopped and changed’ based on an analysis of returns of the fund compared to the ALSI over the month."

"Next, we analysed the effects of applying such a trading strategy to longer periods, evaluating both one- and three-year periods.” 

“The results,” says Jankowitz, “were not unexpected but they did expose the extent of the foolhardiness of a ‘chop and change’ trading strategy."

"Applying the monthly strategy to the Foord Equity Fund resulted in an annualised average return over the 13-year period of 18.1%, which was only marginally better than the ALSI’s 17.3% - and well short of the fund’s actual 20.5% per annum return.” 

The chop and change trading strategy would have cost an investor 2.4% per annum for 13 years (excluding any costs associated with buying an index tracker fund). 

Jankowitz adds that using a 12-month return when implementing the trading strategy, the Foord Equity Fund still returns an average of almost 1.0% per annum more than the strategy.

Even more  telling, simply holding the fund would have outperformed the trading strategy in 87% of rolling 12-month periods.  

“Over a three-year period, these results are amplified: the fund exceeds the strategy's return by a little more than 1.0% per annum, but the fund outperforms the strategy in 98.6% of rolling 36-month periods. These are not odds that any rational investor should be taking” warns Jankowitz. 
  
The message is clear: investors do best to make a well-considered decision at the inception of the investment and to persist with that decision.

This notion is vindicated by reams of academic literature dealing with the effects of emotion on investment choices, and, indeed, this simple empirical analysis.  

As has been seen on many occasions, successful investing is not about timing the markets. It’s about spending time in the markets. 

Comments:
There are no comments at this stage. Be the first to comment!
Please Login To Comment On an Article - Click here To Login

ITInews invites comments at the foot of each of its articles in which readers can respond freely - anonymously if they wish - to various topical issues and industry debates. However, comments submitted by readers that are defamatory or deemed, by the editors, to be racist or obscene will be deleted from the database. Furthermore, ITInews's editor would like to caution potential posters on its websites that while it welcomes robust debate, it will not hesitate to make the IP addresses of the authors of such defamatory statements available to the authorities, in the event of a court order compelling them to do so.



Get car, home, life and business insurance quotes in 3 easy steps


Foord Asset Management


Join us today

More from Foord Asset Management
The role of cash in your investment portfolio
Market recoveries often deliver the best investment returns
Stewardship – Substance Over Form
Professional fund managers should possess an ethic that informs every investment decision
Investment management and performance fees
What constitutes “good value for money”?
Crystal ball investing – Speculation leads to investment loss
A successful long-term investment philosophy eschews trends
Why we don’t save enough
Consider making saving for retirement a default option rather than an active choice.
Are fees incentive enough?
The value and importance of co-investment
Why we blow our Christmas bonuses (and why we need to save ourselves from ourselves)
Investment is all about building a platform for later consumption
What determines the short-term direction of equity markets?
Until very recently, global equity markets have been on a steady upward trajectory
Improving global economies no panacea for South Africa
Foreign equities remain our preferred asset class
A three decade track record that speaks for itself
Outstanding long-term investment performance

Join ITInews in supporting Helpnet.org.za

Archived Articles featuring this company ...


Insurance Quotes


Car Insurance Quotes
Household Insurance Quotes
Business Insurance Quotes
Funeral Insurance Quotes
Life Insurance Quotes

Read the InsuranceQuotes Blog
ITM Website Design Cape Town
Copyright © 2005 - 2015 ITInews Online Publications (Pty) Ltd. All rights reserved Insurance Times & Investments Online and ITInews. ..::ISSN 1995-1256::.. No part of the materials including graphics or logos, available in this Web site may be copied, photocopied, reproduced, translated or reduced to any electronic medium or machine-readable form, in whole or in part, without specific permission from ITInews Online Publications (Pty) Ltd. Distribution for commercial purposes is prohibited.