Examine 10 year performance for true returns picture
Financial advisers should be examining the performance of fund managers over ten years instead of the usual shorter time frames as market failures and bubbles often take more than five years to full play out.
Lazard Asset Management, Australian equities, portfolio manager Phillip Hofflin said current time frames used to assess fund manager performance in Australian equities were too short given that market cycles and critical events typically take more than one to three years to conclude.
"Time frames at the one, three and five year mark are not always good benchmarks in assessing a manager's performance through a critical event and there are times when examining 10 year performance gives a better indicator of how the manager can perform," Hofflin said.
"The tech boom and bust cycle of 2002 actually started in 1998 and took five years to play out fully as has the recent commodities boom and downturn in the Australian market. As such three year performance is not that representative because these market cycles typically go for much longer periods."
Hofflin said longer term performance figures for Australian equities fund managers could be used by managers and financial advisers but they had to learn how to communicate these numbers to investors and why long term time frames were necessary to gauge performance of these managers.
"If fund managers and advisers can communicate performance numbers in a better way we avoid the bias of the short term."
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