MODEL PORTFOLIO Page Summary: It is so good, it is all I use to manage my own money |
Discussion and Evidence
| Sceptic: | Performing with paper money is easy. Performing with real money is much harder. Performing with serious money is harder still. |
| Response: | We are not authorised to manage money. However our CEO uses it to manage his own pension fund, and this proves that it really works. |
| Key Facts: | Since our company was formed, his fund has quadrupled while world stock markets have not even doubled. |
| Statistics: | Total return over the past eight calendar years is +226%* versus +44% for IMA Managed Pension sector and +33% for M&G Managed Pension Fund**. |
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The right-hand chart shows the relative performance of the Model Portfolio compared to the FTSE World Index and to the managed fund of the same provider. The horizontal white line shows what would have happened if the Model Portfolio had merely tracked either benchmark Figures are shown in home currency (GB £). Owing to exchange rate fluctuations, past performance differ if measured in any other currency. * Audited figures available |
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| Sceptic: | It is easy to confuse good luck with good judgement. Consistency is what counts. |
| Response: | That is why the fund diversifies enough to avoid putting all its eggs in one basket, but not so widely that it has to invest in the basket-cases. |
| Key Facts: | At worst the Model Portfolio equalled its benchmarks, while at best it substantially out-performed them. |
| Statistics: | Compound growth over the past eight years has been 15.9% per annum compared to 4.7% for IMA Managed Fund sector and 3.7% for M&G Managed Pension Fund. |
| Explanation This chart uses the FSA recommended approach for displaying consistency of performance by breaking out results for discrete annual periods. As can be seen the Model Portfolio performed averagely in bad years and substantially out-performed in both flat and good years compared to two relevant benchmarks - the M&G Managed Pension fund, which has the same range of investment alternatives and the IMA Managed unit trust sector as a whole. |
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| Sceptic: | Performing with play money is relatively easy. It is a different matter when managing a substantial part of someone's life savings |
| Response: | This is a personal pension plan, and investment options are restricted to the limited range of funds made available by the product provider |
| Key Facts: | It has consistently beaten at least 95% of all Managed Pension, Managed Life or Multi-Manager Funds, Balanced Managed and Fund-of-Funds Unit Trusts*. |
| Statistics: | On any rolling five-year period there have never been more than 5% of such publicly available funds that have performed better. Sometimes there have been none better. |
| Explanation This chart shows long-term performance rank by percentile. That is to say that 1% means it would rank among the top 1%, if compared to the population of closest comparable publicly available funds. The sample has grown from 467 to 848 funds. |
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| Sceptic: | So what's the secret? There must be a catch somewhere. |
| Response: | Focus on making a small number of big decisions, decisively, and diversify to allow for mistakes |
| Key Facts: | That strategy succeeded in reducing risk by losing less in bear markets and making more in bull markets |
| Statistics: | Maximum 12 Monthly Loss -20%, Maximum 12 Monthly Gain +50% (Comparable figures for world equity index -28% and +32%) |
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