Long-term investors may outlast products

Recent research commissioned by fund manager Vanguard Investments Australia has revealed that many of the managed funds in which people choose to place their money may be terminated before satisfying the long-term time horizon of the investor.

The research was conducted by Morningstar and assessed the performance of the top five Australian equity funds spanning a decade from June 30, 1996, to June 30, 2006.

“Almost 30 per cent of the funds analysed in the Morningstar study do not exist today, while 18.8 per cent of the funds that appeared among the top performers in any year were among those terminated,” Vanguard head of retail Robin Bowerman said.

The results showed no factor could actually guarantee the longevity of a fund, including investor loyalty and performance.

However, while the study identified this issue with long-term investing, it reinforced that from a return perspective investors should be focused on long timeframes and not trying to chase returns on the basis of investment themes or styles.

This point was highlighted by the track record of the top-performing fund in 2000. During this year it achieved a return of 47.8 per cent, but only delivered a return of 7.6 per cent for investors in the following year.

Furthermore, continued poor performance saw this fund under perform its index up to 2006, eventually making it the product in the group with the worst performance history.

“Investors and advisers over the years have often fallen into the trap of investing in a particular style, whether that be growth or value, or the latest sector. But as the research has shown, last year’s rooster regularly turns into tomorrow’s feather duster,” Bowerman warned.