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Katz takes aim at offshore nest egg... UNIT TRUSTS: Guardbank Capital Focu... Go the linked route to build a unit trus... Outperform the rest and win a... No need to sign, just say the word and y... Sporting jewels or leather? Cover yourse... |
Top funds get the risk and return mix right
The figures prove there is no substitute for research in choosing the right unit trust, writes LEIGH ROBERTS
The quarterly results of the funds, released this week, once again show how important it is to back a winning horse. Had you invested your money in the best performing fund over three years, Sage Financial Services, you would have been 35% richer. In stark contrast, the worst performing fund over the period, Standard Bank Gold, would have wiped 3.5% off your savings. The table on page 27 shows the 10 best and worst performing funds over the three-year period to March 31. While much credence is given to performance, a fund's level of risk is just as important to the investor. Generally, if a fund has a high risk, the investor expects to be compensated with a higher than average return. This explains the current popularity of the specific equity funds which invest in emerging companies. They carry a higher risk because of the nature of their investments, but are also expected to reward their investors with super returns - last year Investec Emerging Companies Fund yielded 36%. However, many investors prefer to limit their exposure to high-risk funds and put the bulk of their savings into those which carry a more comfortable ratio of risk and return. The accompanying chart reflects the progress of the 23 general equity funds that have been operating for three years or more. (Funds in existence for shorter periods are not shown because their ratios would be misleading.) The chart plots the return achieved by each fund relative to the risk the manager took in achieving that return. Unit trust fund risk is multifaceted, but in this instance it is the volatility of the fund's returns. The dotted lines show the average risk and return, and divide the chart into four quadrants. The ideal place for a fund to be is at the top of the upper left-hand quadrant because this gives the investor the highest return for the least risk. Some funds are comfortably nestled in this quadrant, giving their investors above-average returns at a lower risk. The funds which are housed in the bottom left quadrant are producing a lower than average return, but their investors are being compensated with a below-average risk. The funds in the bottom right quadrant are not giving their investors much joy - notching up lower than average returns at a higher than average risk. The last quadrant (top right) shows the funds which are producing high returns but at a higher than average risk. A high-risk fund is not necessarily a bad one - provided that it is giving you the corresponding return. When you choose a unit trust fund, past performance should not be the only selection criteria - history is no indication of a fund's future. Choosing the right fund requires a lot of research. You can do this yourself or hire a good, independent, financial adviser to do the job for you. There are three areas, in addition to past performance, that you should look at:
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