Investor experience a key measure
Fund managers need to start measuring the success of their funds by investor experience instead of annual total returns, according to the head of fund research for Morningstar US, Don Phillips.
Speaking at Perennial’s Invest11 conference in Melbourne, Phillips said fund companies were measuring their funds by annual investment performance and how they ranked relative to their competition instead of focusing on whether they were retaining clients and receiving inflows.
Measuring funds by total annual returns was a flawed approach because it assumed that investors placed all of their money into the fund at the beginning of a year and held it in the fund through to the end of the year, Phillips said.
A fund could have an amazing annual track record, but investors could be redeeming more funds than they invest, thus collectively losing money in the fund, he said.
A fund that had net redemptions also wouldn’t get the full benefit of a market rebound, Phillips said.
Funds management companies that managed to close the gap between investors' total returns and the fund’s annual return would be rewarded in the share market, Phillips said.
Recommended for you
ASIC has permanently banned a former Perth adviser after he made “materially misleading” statements to induce investors.
The Financial Services and Credit Panel has made a written order to a relevant provider after it gave advice regarding non-concessional contributions.
With wealth management M&A appetite only growing stronger, Business Health has outlined the major considerations for buyers and sellers to prevent unintended misalignment between the parties.
Industry body SIAA has said the falling number of financial advisers in Australia is a key issue impacting the attractiveness and investor participation of both public and private markets.
