Insight # 54 To evaluate a fund, here are the numbers you need (and don’t need)

by Giselle Roux

Many of us in investment markets are inundated by fund managers seeking to demonstrate their asset management capabilities.

The bulk are interesting people who are looking for that silver bullet to outperform a nominated index. They believe they have skill in selecting companies through research, or another screening methodology. 

This is typically demonstrated by an illustration of the analytical process, how risk is managed and data on the performance in a multi-page document. Invariably examples of great outcomes are used to support the whole package.

But investors need more data, both initially and on an ongoing basis, to evaluate the funds in which they invest, as well as context around those numbers.


Let`s assume we believe there is a good foundation for the fund and that we wish to explore the potential further, before committing. More data is required, such as an interpretation of the performance. In the case of global equities, it may show a bias to a region that has been running hot. The outcome could then represent that this allocation has mattered more than the stock picking, which was said to be at the heart of the process. It could be one sector that does most of the heavy lifting. In a concentrated portfolio it may even be that a few outstanding calls have made their mark, while the majority have lingered in the shadows.

In short, the data could imply that the likely persistence of return is questionable. In other cases, the more one sees, the more one gains comfort that there the process is true to label. At times, however, extracting useful information is a challenge. 


For an end investor there should be insight to the fund in monthly or quarterly reports. Let’s rail against industry practice that stands in the way of providing a better understanding of equity markets in general and the fund in which an investor has entrusted their capital. 

Take a monthly report. This will invariably list five or 10 stocks that added or detracted from the fund’s performance. In my view, this is close on useless. Next month, next quarter, next year you are likely to see another set of names floating past. Sometimes the commentary adds that stock “ABC” rallied due to an earnings upgrade or other event. What have you learnt? One does not argue against personalising the fund through holdings, but unless it speaks to a broader picture of what the fund is about, it adds little value. Funds complain about investor short-termism. Why then highlight short-term pops and dumps?

Performance data

Then there is the performance data. You are likely to see returns data on monthly, quarterly, year-to-date, three and five years and since inception, for example.

Again, the short term should be put aside. Longer-term data requires context. Was all the outperformance in one year (and as luck would have it, you missed that year), or is performance consistent? The performance should be judged on what the conditions were when it was achieved. There is a great example where some funds have viewed the internet stars as expensive and potentially outside their mandate or investment style. Given that a small cohort of stocks is outperforming much of the rest, it may be wrong to view underperformance of that particular as a negative. It may be within what one should expect. 


Investors should also consider net fees. An investor accrues the net performance of a managed fund, yet some show gross performance, as though fees don’t matter. Why can we not see both gross and net performance, then at least there can be no claim that fees are out of sight? 


The benchmark is given as the indicator of relative performance. This alone is a muddy topic. Even with its failings however, inappropriate indexes are common. The worst offenders are those that use a cash index for a fund strategy that is long equity at its core. Increasingly the divide between the MSCI World and MSCI All Country is going to increase with the world index low weight in emerging markets. The majority of listed investment companies don’t report against an index, but state net tangible assets, as though this is in abstraction to market movements. 

The biggest gripe is managers that think their portfolio is some unique entity that no one else should see. Global equity managers domiciled outside Australia generally provide every holding and its weight, in part because it’s a requirement in the US. In a few select cases, one can make a case for limitations, such as stock shorts or positions that are being traded. But, the holdings belong to the investor not the manager and they deserve to see what they are invested in. 

Information is just that. It requires a view on what it means, but withholding or cleansing the information is disrespectful to the investment community.  

Giselle Roux is Chief Investment Officer at Escala Partners.

About Gateway

Gateway Financial Marketing (Gateway) was established in February 2004 by Amanda Rethus and Edwina Best for the purpose of offering fund managers, other product providers and international new entrants, expert advice, services and assistance in negotiating entry into the Australian Retail Financial Services market. Use of Gateway’s services provides the opportunity for clients to overcome the hurdles that can often confront fund managers when transitioning from institutional to retail and hence improve participation in retail funds flow. Prior to Gateway, Amanda and Edwina spent over 30 years combined with major institutions in the financial services market.

Our qualifications

Amanda has over 20 years’ experience in the Financial Services industry and was formerly a Divisional Director in the Financial Services Group of Macquarie. Amanda managed investment portfolios for over 10 years, and has spent in excess of 10 years introducing investment products to the Australian Retail market.

Edwina has a Bachelor of Business from UTS majoring in Marketing and International Business. She has over 15 years’ experience in the financial services market, concentrating in relationship management, product management and marketing. They both have extensive contacts in the retail financial services market especially with key decision makers. If you would like to confidentially discuss your current approach to the Australian market or have any questions on the above please do not hesitate to contact us on – Edwina 0404 046 179 or Amanda or 0414 658 323.


This information speaks only as of the date it is given and the views expressed are subject to change, due to factors such as market and industry conditions. There is no obligation to update the information in this article. The information, whether taken from public sources or elsewhere, has not been verified and we have relied upon and assumed without independent verification, the accuracy and completeness of the information.

To the extent permitted by applicable law, none of Gateway Financial Marketing Pty Ltd, its affiliates, or any officer, accepts any liability for any direct or consequential loss arising from any use of this article or its contents.

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