Relative Performance
Discussion
I didn't want to intrude into the love-in on the Intelligent Money thread but I did want to check I'd understood the point being made about comparing various types of performance.
Am I correct in thinking that the underlying point being made was that if a random overseas benchmark gains 20% in a year in its local currency but the GBP swings by 20% against that currency you might end up making nothing at all because your gains (or losses) have been amplified or cancelled out simply by currency swings?
A bit like the way that during Brexit there were days where you'd expect funds to have lost money but they made small amounts simply because of how the GBP had performed?
Am I correct in thinking that the underlying point being made was that if a random overseas benchmark gains 20% in a year in its local currency but the GBP swings by 20% against that currency you might end up making nothing at all because your gains (or losses) have been amplified or cancelled out simply by currency swings?
A bit like the way that during Brexit there were days where you'd expect funds to have lost money but they made small amounts simply because of how the GBP had performed?
It is certainly my understanding.
For the last few years, the US market has been rising and Sterling generally falling creating a whiplash increase in fund performance.
In January I had decided that, towards the end of this year, after a 2nd Trump victory, the US would likely pause, and when Brexit was finally complete, Sterling would tend to rise and smaller companies benefit from a windfall, so Plan A was to switch to UK only funds.
Doh!!
For the last few years, the US market has been rising and Sterling generally falling creating a whiplash increase in fund performance.
In January I had decided that, towards the end of this year, after a 2nd Trump victory, the US would likely pause, and when Brexit was finally complete, Sterling would tend to rise and smaller companies benefit from a windfall, so Plan A was to switch to UK only funds.
Doh!!
That was one of the points Derek was trying to make, but I am not sure about the others!
Yes, when holding overseas priced investments currency can work both for and against you.
PH Equity outperformed in both dollars and pounds though, so it was a bit of a moot point.
Derek also has a big thing about comparison to the "relevant" benchmark, which I completely agree with.
Again this is a moot point though as PH Equity has outperformed every benchmark I can imagine and I have posted a new comparison this morning on the IM thread to highlight this in real world terms.
Yes, when holding overseas priced investments currency can work both for and against you.
PH Equity outperformed in both dollars and pounds though, so it was a bit of a moot point.
Derek also has a big thing about comparison to the "relevant" benchmark, which I completely agree with.
Again this is a moot point though as PH Equity has outperformed every benchmark I can imagine and I have posted a new comparison this morning on the IM thread to highlight this in real world terms.
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hstewie said:
hstewie said: I didn't want to intrude into the love-in on the Intelligent Money thread but I did want to check I'd understood the point being made about comparing various types of performance.
Am I correct in thinking that the underlying point being made was that if a random overseas benchmark gains 20% in a year in its local currency but the GBP swings by 20% against that currency you might end up making nothing at all because your gains (or losses) have been amplified or cancelled out simply by currency swings?
A bit like the way that during Brexit there were days where you'd expect funds to have lost money but they made small amounts simply because of how the GBP had performed?
For unhedged funds, which most global equity funds are, then yes. For those which employ currency hedging (e.g. global bond fund) you won't have the same movement due to currency fluctuations.Am I correct in thinking that the underlying point being made was that if a random overseas benchmark gains 20% in a year in its local currency but the GBP swings by 20% against that currency you might end up making nothing at all because your gains (or losses) have been amplified or cancelled out simply by currency swings?
A bit like the way that during Brexit there were days where you'd expect funds to have lost money but they made small amounts simply because of how the GBP had performed?
The other point made was that you should use the total return index (dividends reinvested).
Derek Chevalier said:
For unhedged funds, which most global equity funds are, then yes. For those which employ currency hedging (e.g. global bond fund) you won't have the same movement due to currency fluctuations.
The other point made was that you should use the total return index (dividends reinvested).
I've never entirely understood why any benchmark or fund performance graph wouldn't default to show performance with dividends reinvested by default.The other point made was that you should use the total return index (dividends reinvested).
If only because you'd think whoever was promoting the fund would want to show it in the best possible light.
bhstewie said:
hstewie said:Derek Chevalier said:
For unhedged funds, which most global equity funds are, then yes. For those which employ currency hedging (e.g. global bond fund) you won't have the same movement due to currency fluctuations.
The other point made was that you should use the total return index (dividends reinvested).
I've never entirely understood why any benchmark or fund performance graph wouldn't default to show performance with dividends reinvested by default.The other point made was that you should use the total return index (dividends reinvested).
If only because you'd think whoever was promoting the fund would want to show it in the best possible light.
Simpo Two said:
I see exchange rates as simply another variable. Half the time you're probably ahead, half the time you're probably behind. So as with any other investment, if you don't have to sell under duress, it will average out. Probably.
Hell of a variable though.Ever look at a fund chart that's heavily into US stocks and see what it did at the Brexit referendum?
Crazy.
bhstewie said:
hstewie said:Simpo Two said:
I see exchange rates as simply another variable. Half the time you're probably ahead, half the time you're probably behind. So as with any other investment, if you don't have to sell under duress, it will average out. Probably.
Hell of a variable though.Ever look at a fund chart that's heavily into US stocks and see what it did at the Brexit referendum?
Crazy.
Derek Chevalier said:
bhstewie said:
hstewie said:Derek Chevalier said:
For unhedged funds, which most global equity funds are, then yes. For those which employ currency hedging (e.g. global bond fund) you won't have the same movement due to currency fluctuations.
The other point made was that you should use the total return index (dividends reinvested).
I've never entirely understood why any benchmark or fund performance graph wouldn't default to show performance with dividends reinvested by default.The other point made was that you should use the total return index (dividends reinvested).
If only because you'd think whoever was promoting the fund would want to show it in the best possible light.
My performance monitoring system has for over 30 years been once a week (after close of market, at the end of each week) on an individual calendar year basis, and since computers in league table form.
Imagine before home computers becane available, it was very basic!
The practical problem doing a continuous comparison with (say the) FTSE All-Share, is that at year end, Total Return is now easily available, but how can once a week be done? The basic Index figure is of course widely available. Years ago, when yesterday's share prices were only available in newspapers, it was impossible.
Edited by Jon39 on Monday 13th April 08:04
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