Fund Unit Prices v Fund Performance

S

superhooper

Registered User
Messages
39
Hope this makes sense but is it better to judge a pension scheme by the unit price performance or by the fund performance?
 
Are you asking about an existing scheme that you are in or are you taking past performance into account in making a decision to buy a new product?

Perhaps you might give us an example of the figures you are studying?
 
It’s a company pension scheme. Defined Benefit of course. I have two conflicting indicators. The unit price method produces excellent results while the fund growth analysis is poor.
 
To get a proper answer about a fund performnce you should calculate the IRR . This requires data about the price and date each unit was bought. The IRR is the rate of return which, if applied to each unit bought would equate the value of the gross investment to date with today's fund value. This can be accomplished in excel using the goal seek method.
I have a spreadsheet setup to fo it if you want to PM me with your email address, I don't think I can upload it here. But you need to have your pricing history.

It gives results that may surprise people as fund performance stats issued by investment managers only look at changes in fund prices between 2 dates - this takes no account of what price units were bought at between those dates - to say a fund has increased 20% over 10 years tells you nothing about the performance of the money you invested in the last 9 nine years.
 
Your own fund performance is really all that matters at the end.

For example if there's a 100% rise in the unit price value over 10 years or a 10% per annum return, if you're investing 10k a year and this 100% happens in year one you end up with 110k but if it happens in year ten you end up with 200k.

You could even end up with around 60k of your 100k at a 10% per annum return if there was 150% rise in year one and a 50% drop in year 10.

So here (with extreme examples to show the problem) you'd have a final value of 60k, 110k or 200k from a 100k investment with the pension fund unit price being up 100% in all three cases.

Pension companies invariably show expected returns based on a smooth yearly return - in equity based funds this will never happen.
 
Thanks. So in a nutshell one should primarily use the unit prices of the fund rather than the underlying growth of the fund itself? Reason being; you will have to buy into the fund at the current unit prices and sell at some future unit values when you want to draw on your pension fund. So therefore these unit prices will be directly influenced by the performance of the fund but also presumably by other factors such as the markets like or dislike for that particular fund?
 
It would be most unusual for a fund to be traded in the market. The main factors affecting the price of a fund are the skill or luck of the managers managing the fund - and primarily the luck - ie have they invested in an asset which has increased in value ?

The only objective factors available in comparing one fund with another is the size of the management fees and their asset allocation strategy - all the rest are either irrelevant ie past performance or a guess ie predictions of future performance.
 
Yes but the market determines the price of the investments which the fund hold, not the price of the fund itself directly.

Thus the fund price depends on the skill/luck of the investment manager as much as on the market
 
You must log in or register to reply here.
Back
Top