A superb recent performance may sometimes mask dangerous risk-taking. A dismal recent performance may sometimes mask a solid investment process and good long term track record. Differentiating both is unfortunately more art than science.
A thread on how to address this...
A thread on how to address this...
1) Consider full market cycle performance from peak to peak or bottom to bottom.
2) Check how did the performance occur - huge sector calls, concentration, mid & small cap exposure etc
3) Check downside capture ratio and declines vs benchmark in all major falls
2) Check how did the performance occur - huge sector calls, concentration, mid & small cap exposure etc
3) Check downside capture ratio and declines vs benchmark in all major falls
4) Do you understand the process?
5) Do you have a rough quantitative/qualitative check for the process by looking at portfolios?
6) Will you be able to tell if the process is followed especially when a fund is underperforming?
5) Do you have a rough quantitative/qualitative check for the process by looking at portfolios?
6) Will you be able to tell if the process is followed especially when a fund is underperforming?
7) Will the fund manager communicate if something goes wrong? Is there a previous instance where this was done?
8) Will the fund manager be allowed to stick to style despite underperformance?
9) How are other "same style" funds performing?
8) Will the fund manager be allowed to stick to style despite underperformance?
9) How are other "same style" funds performing?
10) As size becomes large sometimes the earlier style may not be replicable - when does size become a constraint for the strategy?
11) Rough idea of the underlying valuations
12) Has there been a fund manager change? Did the investment style change drastically?
11) Rough idea of the underlying valuations
12) Has there been a fund manager change? Did the investment style change drastically?
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