The debate about active vs. passive management continues to rage, but there is one portfolio poised to put advisors in the driver’s seat if they have the nerve to use it
A UK brokerage firm has produced a model “momentum” portfolio that would have delivered investors a stunning 3,000% return over 20 years between 1995 and 2015.
FundExpert took the best performing mutual fund from the previous six months leading up to September 1995 and invested in that particular fund repeating the process 39 more times over the next two decades.
FundExpert dubs the portfolio “Bonkers” because no one in their right mind would initiate such a risky investment strategy, especially not financial advisors.
“It’s an example to prove a point, rather than something people should necessarily consider,” said Brian Dennehy, head of FundExpert. “People still need to be able to sleep at night and be comfortable with the risk they are taking.”
Interestingly, the longer one sticks to this type of approach the more likely the chances of success despite the unbelievably high level of risk. Only one fund was found to have been held for two six-month periods in a row and that was between September 2003 and September 2004.
Single-country funds such Russia and India were very popular over the 20-year span with volatility almost double the typical UK mutual fund.
A $200,000 investment in the Bonkers portfolio in September 1995 would be worth $6.3 million today, an annualized return of 18.8%, almost 1100% better than the FTSE All Share Total Return Index, which incorporates between 98-99% of the UK market cap.
With the exception of the first three years of the 20-year test on no occasion did the Bonkers portfolio trail its benchmark indices.
How many active managers can say the same?
FundExpert took the best performing mutual fund from the previous six months leading up to September 1995 and invested in that particular fund repeating the process 39 more times over the next two decades.
FundExpert dubs the portfolio “Bonkers” because no one in their right mind would initiate such a risky investment strategy, especially not financial advisors.
“It’s an example to prove a point, rather than something people should necessarily consider,” said Brian Dennehy, head of FundExpert. “People still need to be able to sleep at night and be comfortable with the risk they are taking.”
Interestingly, the longer one sticks to this type of approach the more likely the chances of success despite the unbelievably high level of risk. Only one fund was found to have been held for two six-month periods in a row and that was between September 2003 and September 2004.
Single-country funds such Russia and India were very popular over the 20-year span with volatility almost double the typical UK mutual fund.
A $200,000 investment in the Bonkers portfolio in September 1995 would be worth $6.3 million today, an annualized return of 18.8%, almost 1100% better than the FTSE All Share Total Return Index, which incorporates between 98-99% of the UK market cap.
With the exception of the first three years of the 20-year test on no occasion did the Bonkers portfolio trail its benchmark indices.
How many active managers can say the same?
