The table on page 25 (MM print edition February 23, 2006) summarises the results of all the funds considered.
The three scenarios tested the returns of the 148 international equity funds in the Mercer IS survey over varying time periods, and therefore market conditions.
Scenario 1: Funds >= Three-year history, rolling average returns since inception
The rolling average one-month, three-month, and one-year returns since inception (commencement of data reporting) to December 31, 2005 (or prior if data reporting ceased) were calculated for each fund that had at least three years data history reporting during the past 25 years.
The average one-month return ranged from —0.95 per cent to 1.77 per cent, with an average monthly return across all funds of 0.72 per cent. That’s a very respectable figure given that this is an after-tax and management fee one-month return.
Rolling average three-month return ranged from —2.50 per cent to 5.16 per cent, with an average across funds of 2.09 per cent.
The rolling average one-year return ranged from —11.50 per cent to 20.97 per cent (achieved by a fund that dropped out of the survey over time), with an average of 8.06 per cent.
Scenario 2: Funds >= Three-year history, rolling average returns over the past three years
This analysis includes funds that reported data for at least some of the three years to December 31, 2005 (hence removing survivorship bias).
The past three years have been a better period for international equity funds — the average one-month, three-month and one-year returns are higher than the ‘since inception’ returns, at 0.73 per cent, 2.65 per cent and 9.93 per cent respectively.
The range of returns also contracted, with the minimum returns achieved being far higher, particularly for the average rolling one-year return analysis.
Either the fund managers that were still around to report data during the past three years are on average a more skilled bunch than those that were around prior to that period, or the past three years have been a more benign market environment — or both.
Scenario 3 Funds >= Five-year history, rolling average returns since inception
The rolling average one-month, three-month, and one-year return ‘since inception’ (commencement of data reporting) to December 31, 2005 (or prior if data reporting ceased) was calculated for each fund that had at least five years data history reporting during the past 25 years.
Here we see the return ranges expand again, signalling that the past five years was a tougher period than the past three years.
Nonetheless, the average returns across all the funds considered were respectable (particularly given these are post-tax and management fee returns) and positive — important given that investors hate to lose money. An average 9.03 per cent rolling annual return across all funds is competitive with a bank term deposit.
Scenario 4 Funds >= Five-year history, rolling average return over the past five years
Here we see the return ranges again expand, signalling the five-year period was tougher than the three-year period for international equity fund managers.
The minimum rolling average one-year return was -27.25 per cent (achieved by a fund that is no longer operating, perhaps not surprisingly, and therefore not shown on the graphs and table).
Summary
The analysis reinforces that over the past three years international equity funds have on average performed well — the average of all the funds’ rolling average one-year returns was a competitive 9.93 per cent, with some funds having an average one-year return in the 15 per cent to 20 per cent range.
However, the five years to December 31 was a much tougher time — even the best performing fund achieved a rolling average one-year return of just 5.61 per cent.
Deidre Keown is an analyst with PortfolioConstruction Forum.
