I have been on a bit of a tear lately with regard to hedge funds and their appalling lack of ability and the extraordinary amounts they pay themselves for being worse than average. However, I am nothing if not egalitarian in my dismissal of managed funds as a mechanism of wealth creation. My disdain extends to the local superannuation industry particularly after I came across this self-congratulatory wankfest from SuperGuide which trumpeted the genius of local funds.
Super funds surpassed expectations in the year to December 2023. Against a backdrop of challenging economic conditions and geopolitical tensions, with high market volatility, the median Growth fund returned 9.9%.
This more than made up for the 4.6% loss the previous calendar year and represents the 11th positive return in the past 12 years.
That’s nothing to boast about since the All Ordinaries Total Return Index for last year returned 12.98%.
As with everything this deserves context. The chart below compares the performance of the average growth fund as quoted by SuperGuide versus the returns from the All Ordinaries Total Return Index.
There are a few years when the funds managed to beat the index (just) but more importantly in the years when the market is booming, they underperform markedly. This can be seen by looking at the value of $1 invested in the average growth fund and the All Ordinaries Total Return Index.
Mediocrity among fund managers is not geographically centric – it applies to all fund managers everywhere in the world as does their ludicrous compensation for their mediocrity.
Question then: are the fund managers really all that bad?
As small traders we have an edge (or perhaps more than one), or we should have.
Do fund managers have an edge? Does the size of a fund and the huge research resources they have at their disposal give them a particular edge. I suspect that it may, but it is different from ours.
However, their size could also be their Achilles heel and all that their edge gives them is the capacity not to be worse than they are. It seems to me that it is just possible that the fund managers are actually good at what they do but they are vastly constrained by the inherent limitations of their practice., the rules, pridential oversight, etc.
Maybe the real thing here is that the funds are doing as well as they possibly can, notwithstanding that some managers will innately outperform others in their “underperformance”. And maybe this is why it is not geographically centric.
So, it is the old story, if you permit somebody else to manage your life (money, etc) you have to accept that risk. But, if one decides to take responsiblity for oneself then one has to be good enough to make it work = Mentor programme, a prelude to an edge.