In our June quarterly last year, we wrote about what we thought was a disconnect between the long-term investing we undertake and the focus in our monthly and quarterly reports on short-term price movements.
We have tried to do a lot less of that over the past year, instead focusing on the progress (or lack thereof) of the underlying businesses in both portfolios. Long-term performance is, of course, why you pay us and every 30 June, coinciding with our annual distributions, we want to include a supplement with our quarterly report, reflecting on our returns and where those returns have come from.
For the Australian Shares Fund, the past 12 months produced excellent returns. In a year where the tailwinds from equity markets were negligible — the ASX All Ordinaries Index rose just 2.0%, including dividends — the Australian Fund returned 18.1%.
It should be noted that the performance of the Australian Fund is flattered by a poor index return that wasn’t reflective of the overall market. Dragged down by high weightings to banks and large miners, this broad index dramatically underperformed the average stock listed on the ASX. A better barometer of average stock performance, the MVIS Australia Equal Weight Index, returned 8.9% for the year. Our return, 18.1% net of all fees, is still an outstanding result, but any fund manager with a mandate as broad as ours shouldn’t be slapping backs too hard just for beating the All Ords.
It was a difficult year for global equity indices too, with the benchmark MSCI World Index falling 3.4% in local currency and 0.8% when measured in Australian dollars. A week before the end of the financial year, the International Shares Fund was looking at meaningful outperformance of that index.
Our exposure to the UK and its Brexit vote, however, brought returns back to a level only marginally better than the index (+0.4% in Australian dollars).
The broader backdrop has been excellent for our style of investing. Meaningful global selloffs in August last year and January/February of this year provided the volatility we needed to put money to work at attractive prices. More so in Australia, where the index has only returned 6.5% p.a. since the Australian Fund’s inception in October 2009, but increasingly internationally, we are experiencing low overall market returns but dramatic variation within sectors. That variation is enabling us to find opportunities that meet our required return criteria despite an overall market that doesn’t look particularly cheap.
In the report you can read about every stock that has contributed more than 0.5% to performance either way. I’d love to hear your feedback and any further information you would like to be receiving from us, but also hope you find it enlightening. Before we jump into the detail, though, a word of caution. We currently live in a world where all asset classes are priced to deliver much lower future returns than what they have delivered historically. In the case of some – German government bonds and Australian residential property, for example – absurdly so. Our goal remains to outperform Australian and international equities but we are not immune to this environment. You should expect future returns to be lower than what have been seen in the past.
13 thoughts on “2016 Performance Report”
Forager Funds performance is almost the reverse of what I expected this time last year. Equity investing is also like a box of chocolates it seems …. Well done on benchmark outperformance x 2. Appreciate the candour with regards to the dogs, although a little more detail in some areas would have been nice. Take the International Fund for example. Nobody bet on Brexit but it happened. So what does it mean now for the significant Lloyds, Countrywide and other UK investments? Busted thesis, buying opportunity or wait and see?
The annual performance report is, by intent, a retrospective. However, I think it’s also a good time of year to meaningfully address Foragers particular strengths, process, applied learnings, significant risks and opportunities for the year ahead. Of course they are likely to be quite different for each fund.
While stocker pickers shy away from macro commentary and currency movement predictions where they can, these factors remain significant in terms of investment strategy, so I’m interested in your opinion anyway (or reference to those opinions who you most respect).
Thanks Ron, we’re mostly focusing on the past in the performance report and the future in the quarterlies. There’s plenty on the Brexit impact in the June quarterly.
Right you are. Sorry. I stopped scrolling after “Brexit sends the world into a tizz”. Don’t know why? Costamare and El.En. huh. Love the investment case.
5 min video clips – an excellent addition
consider inclusion in the quarterly reports and perhaps even monthly
Alex, good supporting act for SJ – questions flowed naturally, eye contact with camera focused
Steve nice to see you and the staff fessing up to some disasters.
I have money with another fund and they weekly send me an email telling me that they “own shares” in a particular stock that has just rocketed.
I think they are like a guy I used to know who would place 24 x $1 bets on the Melbourne cup so he could boast to his young children he had won the Melbourne cup.
excerpts from Report:
…expect future returns to be lower than what have been seen in the past
Our main mistake here was not adequately stress testing the idea…
Forager strategies to be maintained:
– declaring short comings early, best demonstrated with clarity and transparency in communicating monthly and quarterly reports,
– lumpy returns with low to no performance over 1-3 years but with considered growth to exceed the index over 3-5 years,
– aim to attract ‘patient long-term investors who allow us to make genuinely long term investments’,
– no institutional investors
There is something of a paradox in a fund manager’s performance figures (both relative and absolute), on the one hand, it is his raison d’etre, and over the long term it is the purest measure of his skill and worth.
On the other hand, bundling those figures up with one’s self-esteem is anathema to sound investment thinking. The more this happens (it happens to a greater or lesser extent with every money manager), the greater the potential for historical returns to distort prospective decision making.
A very good record cultivates overconfidence, hubris and excessive risk tolerance. The effects of a bad record vary with different individuals, but there is no denying that it affects decision-making.
I’m not at all religious, but I do believe that embracing the aspects of the Buddhist ethos that describes attachment as one of the “three poisons” and equanimity as one of the “four virtues”, is essential for investment mastery.
Yes. It’s a bit like in poker where players go ‘on tilt’ after big wins. Infusing decisions with any sort of emotion is always hazardous. One has to try and stay rational and unemotional and bet the odds irrespective of recent wins or bad beats, and remain confident that if the process is good, ultimately outcomes will eventually be good also.
I don’t think it’s any coincidence that some of the worlds best investors, like Buffett, live fairly humbly & are frugal relative to their net worths (Buffett lives in the same upper-middle-class home he bought some 50 years ago). This lack of materialism likely helps investors like Buffett to be less emotional about money & investing – they are playing the investing game because they like the game, not because they care about the money. They can disengage more easily from market volatility and stay rational.
It results in a delicious irony – those that care the least about the material rewards of being a successful investor are the ones most likely to reap those rewards!
What a great insight LT3000. Much to ponder in what you say.
I was under the impression that Madison Square Garden was a big winner in the international portfolio? but in chart 4 of the report it is listed in the negative % column.
It was, but in the previous financial year. MSG’s share price fell between 30 June 15 and when we sold it.
Cheers Steve 🙂