This is a link to an interview I did with Kieran Cuddihy who was standing in this morning for Ian Guider on Newstalk Breakfast. (just skip to 8mins 40 seconds)
At the end of each quarter you will find that several of the different large consultancy houses such as Rubicon or Mercer will produce reports in relation to the performance figures of group pension funds.
If you are an employee in a large company it’s likely your pension, at least in part, is invested in some of the funds reviewed. However you will find individual investors who invest with life companies either with their pension or non pension money are also accessing these funds or “mirrors” of these funds. So these reports are of interest to a large number of people.
Most recent reports have shown the average fund has returned 6.1% in the first 6 months of the year. The variance between the worst and best is 4.7% (merrion) vs 8% (setanta)
5 year figures are also strong with an average of 11.9% per annum, Standard life top the poll with 14.1% per annum and 10.7% per annum from Aviva drags the average down.
The reports tend to focus on the funds that are called “managed” funds .A managed fund is a mix of different assets classes like shares, bonds, property and cash. The fund manager decides how much is allocated to each and what way to invest the money.
A managed fund is often seen as the flag ship fund of a fund manager as it brings together all the expertise within an investment house and displays the ability or lack thereof of the manager.
I have some issues with these reports; firstly, what was learnt in recent years is that managed funds have their limitations. A managed fund must invest within its mandate. This means that it must hold, for example, between 45% and 65% of the fund in equities/shares.
Even if the fund manager knows equities are about to fall apart he or she can only drop the exposure within the agreed parameters. Therefore we are now seeing more and more “multi asset funds” and other types of funds that can drop to 0% allocation on any of their asset classes if they see fit. Eventually these could take the place of the traditional managed fund.
The other problem I have with the report is its focus on the short term. Focusing in on 6 month performance of a fund manager is next to pointless. It is little like watching 5 minutes of a national football league game back in February and predicting who will win the championship in September
Managers also tend to have to be mindful of these reports. I have sat in rooms with fund managers who explain they will not go too far outside the box in case they get caught out and their performance suffers compared to their peers. With the exception of a few trailblazers this is a real case of ensuring everyone moves in line with each other and nobody rocks the boat.
These reports are focused on the group pensions market but often people interpret them as “pensions”. In other words when people say “jaysis, pensions are doing well” it is often as a result of the media reporting these figures.
However the pension and investment fund world available to the Irish investor is far superior to the short list of these 10 funds.
For example, I could within 5 minutes of looking at the broader universe of investment find at least a dozen funds that offered investors more than 25% growth in the last 6 months. I even identified one very risky fund that returned over 100% growth in six months.
Even some of the funds that are in the same sector as the “group pension” market are providing better returns than what is being analysed on these reports.
My point is the market is changing and the Irish investor is now able to access significantly more funds than these reports analyse. Yes these reports are useful, but only to a point.