Thursday 27 February 2014

FE Alpha Managers

It's a fairly well documented fact that most actively managed funds under perform their passive, index tracking rivals (and charge investors extra for the privilege). 

However there are some managers out there who are well worth their proverbial salt, beating the market consistently over long time frames. Here are five such managers as demonstrated by the FE Alpha Managers list. Below are the current top five performers over a 10 year period, and the respective funds they manage.

1. Harry Nimmo - Standard Life UK Smaller Companies Trust PLC - 438.3%
2. Daniel Nickols - Old Mutual UK Smaller Companies PLC            - 384.1%
3. Martin Lau      - First State Greater China Growth                         - 337.5%
4. Nick Train      - CF Lindsell Train UK Equity                                 - 307.3%
5. David Dudding - Threadneedle European Select                            - 302.5%


Some of these outstanding returns are no doubt attributable to the fact that these funds rate higher than average on the risk spectrum: you would expect smaller company, and emerging market funds to generally outperform the market as payment for taking on the extra risk. It is of little surprise that no income funds made the top five.

Nonetheless these managers have all significantly outperformed their benchmark indexes and deserve consideration as part of the risky portion of an adventurous portfolio. Whilst past performance is no certain guide to the future, there is a reasonable chance that shrewd managers who have made good investment decisions will continue to do so going forward.

For more information on index trackers v managed funds check out the following link.


Wednesday 5 February 2014

10 Tips For Stock Market Success

  1. Buy quality businesses at reasonable prices:  look for companies with an enduring competitive advantage, a strong revenue stream, and ideally a good record of dividend payment/growth. Familiarise yourself with valuation measures such as PE ratios, NAV etc and use these to determine whether the business is attractively priced. Resist the temptation to overpay.                                                                                                   
  2. Learn to cut your losses and let your profits run: if the fundamentals of an investment have changed for the worse, then re-evaluate your position and possibly get out. Don't try and hold out until you have recouped your loss, you might be better off making your money back on a different (healthier) horse. On the flip side don't be too quick to bank your profits on good companies.                                                                                                                                                                               
  3. Be tax efficient: make use of your ISA allowance, pension contributions, and other tax reducing investments. The majority of smaller DIY investors can avoid paying tax on their investments if they plan effectively.                                                                                                                                            
  4. Use diversification wisely: diversification is a double edged sword. On one hand holding a large basket of shares does negate much of a portfolio's company specific risk, but on the flip side if you are not allocating enough capital to your best ideas, you're less likely to outperform the market (presuming your best ideas are any good).                                                                                                                                       
  5. Size matters: in theory investors in smaller businesses should be rewarded with higher returns for taking extra risk, and Jim Slater's adage that 'Elephants don't gallop' would appear to have some merit. Yet I don't think it's as straight forward as this. Large boring companies are often undervalued by the market and can produce great returns, with less volatility than smaller companies. The FTSE100 has significantly outperformed the AIM index since it's inception.  Large cap companies may not double in price overnight, but they make up for this by not going to the wall as frequently as their smaller brethren.                                                                                                                                    
  6. Use tactical asset allocation: If the indexes of the world are heavily overbought, and trading on 20+ PE ratios, consider diversifying into other asset classes that may offer you higher returns, or at least protect your capital against a fall in the market. Conversely if stock prices are cheap on a historical basis, consider increasing your exposure to them.                                                                                                                                                                                                                                                                                   
  7. Keep a lid on costs/fees: minimise your costs as much as possible and try not to over trade. A saving of 0.5% a year on fees would make a huge difference to your investments over a lifetime of investing. For examples of the effects of lowering fees check this link.                                                                                                                                                     
  8. Invest for the long term & use cost price averaging: be patient, view your stock market investment as a get rich slowly scheme. Historically equities have outperformed cash 99% of the time over an 18 year period, but you may have to ride out some short/medium term volatility before gains are realised. Buying equities in tranches will help smooth out some of the short term market volatility.                                                                                                                                                                                
  9. Be contrarian: the best value is usually found in equities that other investors fear to touch. Financial & House Builders' shares fell heavily out of favour during the credit crunch and in most cases investment into these sectors would have paid off handsomely. Conversely, if a particular share/sector is getting a lot of positive press and has already significantly rallied, you may do well to keep away from it.                                                                                                           
  10. Read up: like most things in life there is a learning curve to investing, and because there is money involved it makes good sense to learn as much as you can before you commit your hard earned cash to the markets. I recommend reading the Investors Chronicle, Financial Times and Sunday Times Business & Money sections regularly to keep you up to date with matters.