Fund Selection System

Applying asset allocation strategies to select funds in theory and practice

Is fund selection a lottery?

We believe that it is possible to beat the averages consistently

Theory

Is it all a lottery? Recent research by the Financial Services Authority, among others, shows that past performance is an unreliable guide to predicting which fund manager will outperform his peer group. However Investors RouteMap offers another way of beating the averages, and one which is much cheaper than switching managers.

The table below the significance of choosing the right asset classes and importance of tactical asset allocation in fund analysis by changing those choices from time to time. It is based on the 1800+ funds available within UK pension funds that are surveyed in Money Management magazine and Morningstar. The data shows the average compound growth rates for the each major asset class, assuming reinvestment of dividends. NB Categories may not always be precisely comparable.

The best performers are highlighted in green and the worst in red

Click here for personal investment coaching

We can provide advice on switching between funds within a personal pension fund or other kind of packaged investment. 

 

 

 

 

 

             
  UK Open Ended Funds  
  Average Annual Returns %  
             
  Type of Fund <1990* <2000* <2008** RouteMap  
    10 Year 10 Year 5 Year    
             
  Active Managed - - 3.8% Assets  
  Asia Pacific Excluding Japan - 10.1% 9.6% Shares  
  Asia Pacific Including Japan 18.4% 8.1% 7.5% Shares  
  Balanced Managed 15.4% 12.5% 4.1% Assets  
  Cautious Managed - - 2.6% Assets  
  Europe Excluding UK - 16.0% 7.6% Shares  
  Europe Including UK - - 5.3% Shares  
  European Smaller Companies - - 9.2% Styles  
  Global Bonds - 7.8% 6.4% Bonds  
  Global Emerging Markets - 6.2% 10.7% Shares  
  Global Growth 15.5% 13.1% 4.1% Shares  
  Global Money Market Fund - 5.6% - Assets  
  Global Resources Fund - 2.4% - Styles  
  Guaranteed/Protected Funds - - 4.4% -  
  Japan - 4.9% 2.5% Shares  
  Japanese Smaller Companies - - 0.8% Styles  
  North America 14.2% 20.9% 0.3% Shares  
  North American Smaller Companies - - 2.6% Styles  
  Personal Pensions - - 3.6% Assets  
  Property Fund 11.5% 7.1% - Styles  
  Specialist - - 6.1% Styles  
  Technology and Telecommunications - - -1.3% Styles  
  UK All Companies 18.9% 13.4% 2.2% Shares  
  UK Corporate Bond - - 1.2% -  
  UK Equity and Bond Income - - 3.6% Assets  
  UK Equity Income - 13.3% 3.5% Styles  
  UK Gilts 10.6% 10.5% 5.8% Bonds  
  UK High Yield Bond - - 1.1% -  
  UK Index Linked Gilts - 8.3% 6.0% -  
  UK Money Market 11.2% 6.3% 4.1% -  
  UK Smaller Companies - 13.8% 0.4% Styles  
  UK Strategic Bond - - 1.1% -  
  Zeros - - 0.9%    
  Sources: *Money Management, **Morningstar        
             
 

An example of successful asset allocation in the past decade

Practical Example

Asset allocation makes major difference within equity markets between regions. North American funds were among the best performing class of investment in both the decade to 1990 and to 2000 but they were among the worst  in the last five years.

Sample our global asset allocation system

Sample our tactical asset allocation system for bond markets

Sample our tactical asset allocation system for currencies

Sample our tactical asset allocation system for stock markets

Sample our tactical asset allocation system on equity styles

Practice

Play tactical asset allocation within fund management groups. Stick with one - switching managers can cost as much as 5% on single premium payments, and considerably more when saving by regular instalment especially when the plan is young.

If your existing vendor only has a limited range of funds available, increase your options for tactical asset allocation by making all future savings into a second vendor's plan with a broad range of specialist funds.

Use the Investors RouteMap tactical asset allocation software to decide which types of asset and markets look attractive. Ignore the managed funds, and select four of the remaining specialist funds within your plan, whose markets Investors RouteMap rates highly. If security matters highly to you, at least one should be a fixed interest or money market fund. This should provide a good balance between the need for diversification and the opportunity cost of closet index-linking. See our Lifetime Asset Allocation Tool to help identify what your own DIY Balanced Fund should comprise.

Review the monthly Summary Tables in the RouteMaps to see when recommendations on the various markets change and switch between the appropriate specialist funds when appropriate. These include growth and value investing, smaller companies, technology, gold and resources. This is likely to occur on average twice a year for each fund and should cost you only a modest administration charge, in you switch within the same family of funds.