Fund performance

WITH MARY HOLM

Q: I am the trustee of my daughter's estate. On the advice of my solicitor, I invested the funds in a moderate portfolio with a national fund management company (Spicers).

The portfolio is roughly: overseas shares 36 per cent, Australian shares 22 per cent, New Zealand bonds 25 per cent, New Zealand income 11 per cent and Australian property 6 per cent.

That was in April 1998, and the investment then was $164,000. The investment at the end of June this year is worth $167,994, or a gain of $3994.

This seems to me to be a poor return over four years. The fund lost $8756 in the quarter ending June 2002. These figures include the fund manager's costs.

It seems to me that I would have been better leaving the money in the bank.

They did indicate to me in 1998 that I needed to look at the investment I made as a long-term one, of 10 years.

Do you consider the investment has produced a result in keeping with other major fund managers?

I want to do the best for my grandchildren and now I wonder if I should look elsewhere.

A: Your return has, indeed, been poor. You would have done quite a lot better in a bank. But that doesn't mean you've done the wrong thing.

Reading between the lines, it seems your grandchildren won't be needing the money until six years from now.

In light of that, your solicitor's advice, and your portfolio, sound reasonable to me.

You've got nearly two-thirds of your money in shares and property, which over 10 years can be expected to bring in higher returns, and the rest in fixed interest, which gives you diversification and calms down the volatility.

Without the bonds and income investments, the $3994 gain would have been a loss. On the other hand, without the shares and property, you probably won't get as much growth by the time the trust is wound up.

You've had an unfortunate start. World sharemarkets have performed extraordinarily badly in the past couple of years. But if you can lose 5 per cent over a quarter, as you just have, you can also make some pretty dramatic gains at times.

I would be really surprised if things don't come right within the next six years or so. History certainly suggests that they should.

You ask whether you would have done better with another fund manager.

With the benefit of hindsight, we could no doubt go back and find other diversified portfolios that have performed better than yours. We could also find some that have performed worse.

But that doesn't help much. What you really need to know is which one will perform best from now on. And lots of research shows that past performance is no help in establishing that.

For all anyone knows, your particular mix might turn out to be the best of the bunch.

I can understand your concern. It's more uncomfortable to take risks with other people's money.

If you're losing sleep, perhaps you should ask your financial adviser to transfer, say, 10 per cent of the money from shares into bonds.

But I wouldn't start afresh. You would be buying high and selling low. You would have to pay transaction costs. And it's not at all clear that an alternative will serve you better.

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