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Understanding Fund Performance

Are unit trust performance awards worth the paper they’re printed on?

Eamonn Ryan

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Performance tables of unit trusts should always come with a caveat: few are comparable as each set of awards has different criteria, some of which are so specialised as to be almost meaningless. Candice Paine, head of retail at Sanlam Investment Management, challenges one myth in retail investing, that if you invest with an award-winning fund manager you are assured of top performance.

Paine claims there are many different awards with widely differing criteria. “Some of them will be a mystery to the average retail investor,” she says. More importantly, it sometimes happens that the same fund management company may simultaneously manage both a top performing fund and a worst performing one. Especially with specialist funds, they each have particular cycles.

“An individual fund award doesn’t necessarily mean other funds managed by the same fund management house will be top, or that the same fund will continue to be top quarter after quarter. You need to research for yourself what the award was for – taking particular notice of the performance period and how risk is calibrated. You may be surprised at some of the criteria applied to fund performance,” says Paine. Paine also recommends that investors not be blindly brand loyal when it comes to choosing unit trust investments as this may not always be an accurate reflection of consistent performance.

Who’s done what?

Last year saw a return to the bull market, though few analysts were willing to call it such. According to Plexus, for the 12 months to December 2009, the RMB Resources Fund topped the charts with a return of 53,6%, followed by the PSG Alphen Growth Fund, up 43,5%. Worst performance came from the Investment Solutions US Dollar Cash Feeder Fund, with a negative 21,3%, as local investors were squeezed by the rand’s strength.

Over three years the Cadiz Equity Ladder is the best performer, up 22,2% a year, and over five years it’s resources again, this time the Old Mutual Mining and Resources Fund with an annualised return of 29,2%. In the most recent results for the 12 months to April 2010, Prieur du Plessis, Plexus group chairman, says the best-performing sectors were the Domestic Equity – Financial and Domestic Equity Value sectors with 55,7% and 52,3% respectively. As was the case over the quarter, the worst-performing sectors over the 12-month period were the Foreign Fixed Interest – Varied Specialist and the Foreign Fixed Interest – Bond categories with returns of –18,5% and –10,7% respectively.

The three-year and five-year charts are topped by the Domestic Fixed Interest – Money Market and Domestic Equity – Resources & Basic Industries sectors with 9,9% and 22,9% per annum. The best-performing fund over the last quarter was the Grindrod Global Property Income Fund with a return of 11,9%, followed by the Coronation Financial Fund with 11,7%. The worst fund over this period was the Prescient Global Income Feeder Fund A1 with -7,4%.

The best kept secret in successful investing

The best-performing fund over the last 12 months was the RMB Small/Mid-Cap Fund A with a return of 63,8%. Over the last three years it was the Cadiz Equity Ladder Fund with an annual 19,4%, and over the last five years the Old Mutual Mining & Resources Fund A with an annual 26,5%.  Most investors focus on whether or not their portfolio has appreciated. But capital appreciation is only the second most important rule of investing. Capital preservation is the first.

When looking at a fund’s track record it’s important to examine its performance both when the stock market produced positive returns (bull markets) and when it produced negative returns (bear markets).  This is because preserving capital in bear markets is an essential contributor to long-term performance. Delphine Govender, portfolio manager at Allan Gray, says: “Recovering from a loss is much harder than investors realise.  Not only does it take time, it takes an exponentially greater return.”

For example, a 10% loss requires an 11,11% gain to break even; a 50% loss requires a 100% gain to break even and a loss of 70% requires a 300% gain to break even. One consistently top fund manager is Allan Gray. Its Equity fund was launched in October 1998 and since then, up until the end of March this year, the market has gone through 84 ‘up’ months and 54 ‘down’ months. During the 54 down months, the ALSI produced an average monthly return of -3,9%, whereas the Fund’s average monthly return was -1,7%. How was this achieved? Govender says that contrarian value-based investors like Allan Gray always invest with a margin of safety. They first estimate the company’s intrinsic value and then look to invest in those companies whose intrinsic value is greater than the current price attributed by the market. This difference between value and price is the margin of safety.

Raging Bull awards – top fund managers for the year, as rated by PlexCrown:

Domestic management company of the year

The South African-domiciled management company with the best overall performance across sectors consisting of a suite of five or more rand-denominated funds with at least three years’ history:

  1. Allan Gray
  2. Prudential
  3. Nedgroup Investments

Offshore management company of the year
Stanlib Multi-Manager was recognised as the overseas-domiciled management company with the best overall performance across sectors consisting of a suite of five or more non-rand-denominated funds with at least three years’ history.

  • Best Broad-Based Domestic Equity Fund: Absa Select Equity Fund
  • Best Domestic Fixed Interest Fund: Stanlib Cash Plus Fund
  • Best Foreign (South African-Domiciled) Equity Fund: Allan Gray-Orbis Global Equity Feeder Fund
  • Best Offshore Global Equity Fund: RE•CM Global Fund
  • Best Domestic Asset Allocation Flexible Fund:Rezco Value Trend Fund
  • Best Domestic Asset Allocation Prudential Fund: Allan Gray Balanced Fund
  • Best Domestic General Equity Fund: Absa Select Equity Fund
  • Best Offshore Global Asset Allocation Fund: Ashburton Replica Euro Asset Allocation Management Fund

Top outright performers over three years

  • Best Domestic Equity General Fund: Absa Select Equity Fund
  • Best Domestic Equity Growth Fund: RMB Strategic Opportunities Fund (A)
  • Best Domestic Equity Industrial Fund: Stanlib Industrial Fund (A)
  • Best Domestic Equity Financial Fund: Stanlib Financials Fund
  • Best Domestic Equity Resources & Basic Industries Fund: Old Mutual Mining And Resources Fund (R)
  • Best Domestic Equity Smaller Companies Fund:RMB Small Mid-Cap Fund
  • Best Domestic Equity Value Fund: Nedgroup Investment Value Fund (A)
  • Best Domestic Asset Allocation Flexible Fund: Bluealpha All Seasons Fund
  • Best Domestic Asset Allocation Prudential Fund: Dotport Stable Prudential Fund of Funds
  • Best Domestic Fixed Interest Bond Fund: Oasis Bond Fund
  • Best Domestic Fixed Interest Income Fund: Stanlib Cash Plus Fund
  • Best Domestic Real Estate Fund: Stanlib Property Income Fund

Before becoming a financial writer and freelance journalist in 1997, Eamonn Ryan was a legal adviser, company secretary and alternate director at listed company Cashbuild Limited from 1988 to 1997. Since becoming a financial writer, he has focused on the business and financial sectors, as well as personal finance, writing for Finweek, The Star Business Report, Sunday Times Business Times, Business Day, Mail & Guardian, Entrepreneur, Corporate Research Foundation (which brings out a series of books each year ranking SA’s best employers and best managers), as well as a host of once-off and annual publications such as ‘Enterprising Women’ and ‘Portfolio of Black Business’. He also writes media releases, inhouse magazines and sustainability or annual financial reports for various South African corporates and financial services groups, including the Ernst & Young annual M&A book.

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11 Things You Need To Know About Bitcoin

The cryptocurrency has had a tumultuous existence so far.

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Gold Bitcoin Coin

11 Bits about Bitcoin

Even the most tech savvy among us have a hard time wrapping their heads around Bitcoin. It’s a hot topic and a frequent point of discussion among investors, entrepreneurs and stock traders, so you should want to know all about it.

For starters, here’s an overly simplified explanation of Bitcoin: It’s a digital currency (there are more than 800 now) that isn’t controlled by a central authority such as a government or bank. It’s created by “miners,” who use computers and specialised hardware to process transactions, secure the currency’s network and collect bitcoins in exchange. Supporters say it allows for more secure transactions over the internet. That’s in part due to blockchain, a technology that records cryptocurrency transactions chronologically in a public digital ledger.

Bitcoin is only eight and a half years old, but it’s the oldest and most highly valued cryptocurrency out there. In such a short time, it’s had a rocky and controversial history, but it’s also attracted a fair share of high-profile supporters.

Related: 6 Rookie Investor Mistakes You Must Avoid For Profitable Investing

Click through to read 11 bits about Bitcoin that will make you at least sound like you know what you’re talking about next time it inevitably comes up.

The birth of Bitcoin

birth-of-bitcoin

Starting point at 2008

The origins of bitcoin trace back to 2008, when its creator, who went by the pseudonym Satoshi Nakamoto, published a proof of concept for Bitcoin. The proof was then published to a cryptocurrency mailing list in 2009. Nakamoto left the project in 2010 and disappeared, but other developers picked up the work. Bitcoin’s birthday is Jan. 3, when Nakamoto mined the first 50 units of the currency.

An elusive creator

elusive

No one really knows

The true identity of Bitcoin’s creator has never been confirmed. Newsweek claimed to have found Bitcoin’s creator in 2014, identifying Temple City, Calif, resident Dorian Satoshi Nakamoto. He has vigorously denied it. In 2015, an Australian entrepreneur named Craig Wright said he was Bitcoin’s creator, but he couldn’t produce the evidence to support his claim. Whoever Nakamoto is, that person is very rich, as the creator is estimated to have mined a million bitcoins in the currency’s early days.

Very expensive pizza

pizza

We wonder what was on the pizza?

The first transaction involving bitcoin was reported on May 22, 2010, when a programmer identified as Laszlo Hanyecz said he “successfully traded 10,000 bitcoins for pizza.” As of Aug. 28, 2017, 10,000 bitcoins are worth about $43 million.

You can spend bitcoins

spend-bitcoins

How to spend your bitcoins

While it may not seem like it, people continue to use bitcoins to buy stuff. The largest businesses to accept the cryptocurrency include Overstock.comExpediaNewegg and Dish.

Related: Fintech: Fusing Finance And Technology

Federal Bureau of Bitcoin

Federal Bureau of Bitcoin

The banning of Bitcoins

At one point, the U.S. government was one of the largest holders of bitcoin. In 2013, after the FBI shut down Silk Road, a darknet site where people could buy drugs and other illicit goods and services, it took over bitcoin wallets controlled by the site, one of which held 144,000 bitcoins. Investors have been making a killing by bidding on government-seized bitcoins.

A mountain-sized setback

Mt. Gox

Mt. Gox

In early 2014, Bitcoin suffered a devastating loss after the alleged hacking of Mt. Gox, a Japanese exchange. About $460 million of the currency (in 2014 value) was stolen. It was the largest loss of bitcoins ever and raised concerns about how secure the currency was.

The billionaires’ takes

warren-buffett

Warren Buffett

Warren Buffett, perhaps the most famous investor in the world, was not so keen on Bitcoin one of the only times he addressed the currency. “Stay away from it. It’s a mirage, basically,” he told CNBC. “The idea that it has some huge intrinsic value is a joke in my view.”

Fellow billionaire investor Jamie Dimon, chief executive of JPMorgan Chase, had even stronger words about Bitcoin: “You can’t have a business where people are going to invent a currency out of thin air. It won’t end well … someone is going to get killed and then the government is going to come down on it.”

But not all billionaires are against Bitcoin. Mark Cuban has said its value is inflated, but he recently invested in a venture capital fund that backs cryptocurrency. Richard Branson, however, has spoken more optimistically about it.

Related: The Currency Revolution

Wealthy twins and a smart teen

Cameron and Tyler Winklevoss

Cameron and Tyler Winklevoss

Other notable investors in Bitcoin include Cameron and Tyler Winklevoss (the Harvard-educated twins who sued Mark Zuckerberg claiming that Facebook was based on an idea they’d had). They invested $11 million into Bitcoin in 2013, an amount said to be about 1 percent of all bitcoins in circulation at that time. The Winklevoss twins have been petitioning the SEC to create a bitcoin exchange traded fund. The agency rejected the idea earlier this year.

Another is investor and entrepreneur Erik Finman, who invested $1,000 into Bitcoin when he was 14 years old and is now a millionaire.

Celebrities want in

ashton-kutcher-2017

Ashton Kutcher

Celebrities have also expressed enthusiasm for the cryptocurrency. Actor and Goop founder Gwyneth Paltrow advises Abra, a Bitcoin wallet, and Ashton Kutcher, Nas and Floyd Mayweather have all invested in Bitcoin start-ups.

Support from a big financial institution

Fidelity Investments

Fidelity Investments

In August 2017, Fidelity Investments became a rare standout among financial institutions in embracing Bitcoin and other cryptocurrencies. The company allows its clients to use the Fidelity website to view their bitcoin holdings held through digital wallet provider Coinbase.

“This is an experiment in the spirit of learning what these crypto assets are like and how our customers may want to interact with them,” Hadley Stern, senior vice president and managing director at Fidelity Labs, told Reuters.

A hard fork

Bitcoin Cash

Bitcoin Cash

On Aug. 1 2017, Bitcoin experienced what’s being called a “hard fork” as a result of a few issues, including the limited number of transactions that can be processed per second. Essentially, the cryptocurrency split into two, with Bitcoin Cash debuting.

Here’s how Rob Marvin of PCMag explains the situation:

“The Bitcoin fork speaks to a fundamental ideological rift over what’s more important: Preserving the decentralised nature and independent control of the Bitcoin network, or accelerating transaction speeds to make the cryptocurrency more viable for mainstream ecommerce and payments.” Bitcoin Cash allows larger blocks of currency and more transactions per second.

This article was originally posted here on Entrepreneur.com.

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9 Warren Buffett Quotes That Will Teach You More Than Just Investing

While he is one of the most famous investors in the world, his expertise goes beyond money.

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Check out these nine quotes on time, success, mindset and more

There’s more to learn than finance from one of today’s most famous investors, Warren Buffett. In fact, the businessman, financial guru and philanthropist can teach you a thing or two about life. From taking risks to coping with change, Buffett’s expertise that expands far beyond stocks and dollar signs.

From a young age, the billionaire investor was destined for success – selling garbage bags to neighbors and delivering newspapers. By age 15, Buffett was already worth thousands of dollars and investing in real estate.

However, fast forward nearly 70 years and the “Oracle of Omaha” is now worth a whopping $77 billion, according to Forbes, making him currently the second richest person in the world (behind only Bill Gates). There’s much to learn from Buffett too.

Related: 5 Worthwhile Investment Lessons I Learned From Warren Buffett

On time

warren-buffett

Warren Buffett

“No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.” – Warren Buffett

On risk

Warren Buffett

Warren Buffett on risk management

“I don’t look to jump over seven-foot bars: I look around for one-foot bars that I can step over.” – Warren Buffett

On change

warren-buffett

Be the change you want to see in the world

“The most important thing to do if you find yourself in a hole is to stop digging.” – Warren Buffett

Related: 5 Things Warren Buffett Does After Work

On success

Warren-Buffett

What you need to know about success

“You only have to do a very few things right in your life so long as you don’t do too many things wrong.” – Warren Buffett

On empowerment

Warren-Buffett-billionaire-successful-entrepreneur

Image Credit: Art Streiber

“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” – Warren Buffett

On opportunity

Warren-Buffett-problem-solving

When looking for an opportunity…

“You do things when the opportunities come along.” – Warren Buffett

On mindset

Warren-Buffett-billionaire-close-up

Mindset management

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffett

On leadership

Warren Buffett

Warren Buffett

“Someone is sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffett

On motivation

Warren Buffett

Look for motivation

“Predicting rain doesn’t count. Building arks does.” – Warren Buffett

This article was originally posted here on Entrepreneur.com.

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5 Worthwhile Investment Lessons I Learned From Warren Buffett

Patience in long-term investing is one lesson. Investing in what you understand is another – the reason Buffett steers clear of tech.

Toby Nwazor

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It’s one thing to be a good investor; it is quite another to know how to teach investing. Warren Buffett is spectacular at both and has over 50 years worth of financial and investment success to prove it. Nicknamed the Oracle of Omaha, Buffett may not be the richest man in the world, but he is, by a great margin, the planet’s wealthiest investor.

He also dishes out free and priceless investment advice whenever he can, mostly through his annual letter to shareholders. His sage words of advice can benefit everyone across the investment spectrum, from the Class A shareholders of Berkshire Hathaway to the average investor involved in low-key passive income investing.

Here are a few of these lessons Buffett has offered throughout the years that may help you, too, become a better investor.

1Develop an investment mindset

It’s true that any of us can become investors, but not all of us can own and manage our investments ourselves. For that, we’d need a fully equipped investor’s mindset. And that means putting in thousands of hours of intentional study to build your investment-skill level and mental aptitude.

Related: Why Warren Buffett Doesn’t Worry

2There’s a power to practicing patience in long-term investing

Whenever Buffett uses the word “investment,” he specifically excludes speculators who are in the habit of hit-and-run investment (meaning purchasing, then selling off investments at the slightest northward tick in value).

This is why the Buffett-led Berkshire Hathaway has never split its Class A shares (which as of March were worth $258,000 per share) and only created Class B shares to discourage the creation of unit trusts. One of Buffett’s famous statements, which alludes to his preference for long-term investments, is:

“No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.”

A real investor, in short, does not merely speculate; he or she makes informed and intelligent investment decisions and rides it for the long haul. That kind of investor eventually ends up with more success than the short-term kind. Case in point: Berkshire Hathaway’s 2014 letter to shareholders disclosed that in the period extending from 1964 to that year, 2014, the company claimed an overall 751,113 percent gain.

3Prioritise value over money

Ferrari

Sometimes, the amount of money we spend on something and the value we get back from our purchased item do not correlate. Just because you purchased a Ferrari for $400,000 doesn’t mean that your overall quality of life will improve because of the car you drive.

Many people make the mistake of ascribing ultimate value to money. Buffett disagrees. An investor understands that the market prices of commodities and stocks are driven by demand, supply and general market sentiment about the company or commodity in question.

Related: Billionaire Buffett’s 2-List Success Recipe

Buffett has a general formula for investing, especially in stocks. He suggests that the best time to invest in any business is when the price of its stock is lower than its intrinsic value. In simple terms, you should invest in companies when they are undervalued.

4The human factor plays a big role in investing

Buffett’s decades of consistent success are further proof that the now largely discredited efficient market theory is flawed. Investing is both a science and an art, and Buffett believes that modern financial theory does not adequately take into consideration the artistic side of it – the human factor.

Human emotions and sentiment and intelligence affect the market much more than modern financial model is willing to admit. The latter makes things look too easy and straightforward, assuming that something that has never happened can happen.

The modern financial model leans more on past and present market data (physical science) than the human factor (behavioral science) when the reverse should be the case. Buffett has suggested that controlling the emotions is much more important. According to him, “Success in investing doesn’t correlate with IQ  … what you need is the temperament to control the urges that get other people into trouble in investing.”

5Invest in what you understand

Drawing on his “circle of competence” belief, Buffett advises that you “never invest in a business you cannot understand.” In other words, don’t choose businesses requiring knowledge outside your circle of competence, at least not until you have acquired sufficient knowledge to do so. Buffett lumps factors affecting a business into categories: The knowable, the unknowable, the important and the unimportant.

So, what he’s saying is that businesses are a good bet for investing only if their important factors are knowable – and known.

If you don’t have sufficient knowledge about a company, it becomes harder to hold long-term investments and predict what the company (and its industry) will look like a few years down the line.

Related: The Top 25 Self-Made Billionaires In the World

Buffett, for instance, usually stays away from tech industry businesses; he puts most of these businesses in the “too hard” pile on his desk. He refers to investing in businesses you do not understand as trying to jump over seven bars when you should be looking for a one-foot bar (a business you understand) that you can step over.

Clearly, the Oracle of Omaha, over the years, has found and profited from plenty of those one-bar businesses.

This article was originally posted here on Entrepreneur.com.

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