I don't think we do
Performance Update for Colm Fagan's ARF
- Thread starter Colm Fagan
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If that were the case with 16 shares then by the same logic putting all your money in Bank of Ireland shares has a 50/50 chance of beating the market. That doesn't seem right.
Brendan Burgess
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I think that is correct? Why wouldn't it be? BoI could just as easily outperform the market as underperform it.
But that wouldn't make it a good strategy.
Duke of Marmalade
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I think this is related to Sarenco's point. Let's imagine the stockmarket consists of 9 stocks which will grow at 2% and 1 which will grow at 62%; we just don't know in advance which one will do the 62%. Then owning 1 stock gives you a 10% chance of beating the market return of 8%.
In our imaginary market this is the volatility of the different possible portfolios. All have the same expected return of 8%
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Colm Fagan
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I'm not a logician, but here's my attempted answer.
Suppose it's not 50/50. Suppose there's a less than 50/50 chance of an investment in BOI beating the market. If that's the case, then BOI is overpriced and the price should fall until there is a 50/50 change of it beating the market.
In theory, I agree with you on the first point, but this may be where the "nearly always" comes into the picture. I know (or at least, I think I know) that Tesla is grossly overvalued. I used to know a few shares that were significantly undervalued (sadly, no longer after recent price rises, I fear). Professional investors must know of more stocks that fall into both categories. Such knowledge should help to justify their charges. I hope to have a better answer to this question when I compute my 15-year return and compare it with results over the same period for active (and passive) managers. I hope to have figures within a few days.
@Sarenco's point about a small number of shares accounting for a significant proportion of overall performance was discussed previously in this thread, I recall, but I don't remember the outcome!
One response is that the weighting for such shares in a typical portfolio is tiny (especially when they're small and experiencing their highest growth) so even outsized performance won't move the dial much for the total portfolio. I take the point, though, that a completely passive portfolio (i.e., where the same shares are held for the entire period) misses out on new players who transform industries or even establish completely new ones. I've tried to address that problem by adding "innovative" companies here and there, e.g.,, I bought heavily into Nvidia on 30 December 2024 (just before it got hit by the hype about DeepSeek!!).
Duke of Marmalade
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Indeed, it is also known as the Bessembinder effect. If stock prices behave in a quasi Normal or Log-normal distribution you get meaningful diversification with relatively few stocks. But with Bessembinder/skewness a much larger portfolio is required.
Colm Fagan
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There is absolutely nothing significant about 16 stocks. (There were 12 at end 2024).
It's just the variance around the mean that varies with the number of stocks (and their weightings). I think @Duke of Marmalade has explained the point.
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That's 50/50 of being over or undervalued, but not by how much over or under.
The most that an individual share price can fall is -100%, it's worthless.
Whereas the price increase is effectively unlimited, it could increase by +10%, +100%, +1000% ...
So you only need a few star performers amongst a sea of duds to have positive market returns, which is the skewness Sarenco described.
The median stock return is not the mean stock return.
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Duke of Marmalade
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I think we have been here before. I retired around the same time as you (or to be more precise I ARF'ed around the same time). Below is the target you have to beat. It is invested in the Ark Life High Yield Equity fund. I thought it was passive but now I am not so sure. I see it's AMC is .99% which I thought was .95% (I fell for the oldest trick in the saleswoman's book - the 19s 11d one). The results are of course after this charge which I presume is somewhat higher than your percentage costs. The figures have been normalised in accord with GDPR. As I recall you "beat the pants off me" the last time we did this.
Duke of Marmalade
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Succinct description of the point. 50/50 is a statement about medians.
Though I think @Colm Fagan was using the term loosely and was thinking of a "value weighted" concept of 50/50 i.e. the mean. The value weighted interpretation would seem the correct one from an invested perspetive.
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Thank you Colm for the very interesting thread and to all for the informative comments and responses.
I don’t think that Colm needs to beat a passive Global share index fund in order for his approach to be considered successful. I think the key, as he has said, is that he is familiar with the c.16 shares he is invested in and is less worried about a long term market downturn for these shares (I think I have that right?). I believe that the market mostly correctly prices in individual share risks but I’m not convinced that the general market risk is as low as current valuations would indicate.
As Colm mentioned (I think) earlier in the thread, shares are only worth expected future cash flows in the long term. I know it is impossible to say whether the market is irrational or to time a market downturn but it seems to me that returns / multiples do eventually revert to a long term mean (maybe permanently higher than historic due to lower interest rates) - so returns over the next 10 -15 years are unlikely to be anywhere near as good as the last 10 - 15 years. I’m interested in any arguments against that depressing conclusion!
I am in my last few years of “accumulation” and struggling a bit with the risk of a large equity market fall now or when I start an ARF. My choices are v limited in my company pension so can only invest in equity through a passive global index fund (avoiding lifestyling) - I would love to have the opportunity to invest in lower risk, higher dividend boring companies or those types of funds. Even bonds feel quite risky, with low returns versus risk.
I started investing in a pension in the late 90s so maybe that makes me more risk averse given poor returns and volatility over first 10 - 12 years.
I appreciate the time you take to give updates!
I don’t think that Colm needs to beat a passive Global share index fund in order for his approach to be considered successful. I think the key, as he has said, is that he is familiar with the c.16 shares he is invested in and is less worried about a long term market downturn for these shares (I think I have that right?). I believe that the market mostly correctly prices in individual share risks but I’m not convinced that the general market risk is as low as current valuations would indicate.
As Colm mentioned (I think) earlier in the thread, shares are only worth expected future cash flows in the long term. I know it is impossible to say whether the market is irrational or to time a market downturn but it seems to me that returns / multiples do eventually revert to a long term mean (maybe permanently higher than historic due to lower interest rates) - so returns over the next 10 -15 years are unlikely to be anywhere near as good as the last 10 - 15 years. I’m interested in any arguments against that depressing conclusion!
I am in my last few years of “accumulation” and struggling a bit with the risk of a large equity market fall now or when I start an ARF. My choices are v limited in my company pension so can only invest in equity through a passive global index fund (avoiding lifestyling) - I would love to have the opportunity to invest in lower risk, higher dividend boring companies or those types of funds. Even bonds feel quite risky, with low returns versus risk.
I started investing in a pension in the late 90s so maybe that makes me more risk averse given poor returns and volatility over first 10 - 12 years.
I appreciate the time you take to give updates!
Colm Fagan
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First, get the bad news out of the way.
Novo Nordisk’s woes continued to haunt the performance of my ARF (pension drawdown product) in 2025, with a total return for the year of minus 46.4%. As a consequence, Novo Nordisk’s weighting in the portfolio fell from over 15% at end 2024 to less than 9% at end 2025. At its peak at end June 2024, it accounted for over a quarter of my portfolio - and I didn’t sell a single share in the entire period. (Yes, I’ve learned my lesson.)
Now, the good news. The biggest winner in the year was Ryanair with a total return of plus 57%. It started the year at €19.07 and ended at €29.56. I also added to my holding twice, in April at €18.23 and in November at €25.60. Ryanair’s weighting in the portfolio more than doubled, to 12% at year-end.
Another big winner was Phoenix Group Holdings, which has been by far my largest holding for many years. Its total return (in Euros) was plus 48%, made up of 37% growth and 11% dividends. My main regret now is that I took too much heed during the years of advice to reduce my exposure to a single share, which resulting in me selling a portion of my Phoenix holding, but thankfully not too much.
The decision to reduce my Apple exposure at end 2024 and part-replace it with Nvidia also worked out well. In 2025, Apple delivered a total return of minus 4.1% (in Euros); the corresponding figure for Nvidia was plus 22% (plus 29% in dollar terms). I would have done even better if I had waited until after the DeepSeek wobble before investing, but hindsight is 20:20. Having learned my lesson from Novo Nordisk, I reduced my exposure to Nvidia towards year end.
Summarising, the total portfolio return for 2025 (net of expenses) was 13.1%; the detail was as follows (for every €1,000 at the start of 2025):
Fund at start 2025: €1,000
Dividends and Gains: +€132.12
Withdrawals: -€62.59
Expenses: -€5.54
Fund at end 2025 €1,064.00
Expenses were slightly higher than 2024, due mainly to having to pay 1% stamp duty on the Ryanair purchases. The comparable rate in the UK is 0.5%; there’s none in the US. Platform charges are excessive in Ireland, but I think I have as good a deal as can be got at present, thanks to my pension adviser.
The next update will discuss cash flows and liquidity management.
Novo Nordisk’s woes continued to haunt the performance of my ARF (pension drawdown product) in 2025, with a total return for the year of minus 46.4%. As a consequence, Novo Nordisk’s weighting in the portfolio fell from over 15% at end 2024 to less than 9% at end 2025. At its peak at end June 2024, it accounted for over a quarter of my portfolio - and I didn’t sell a single share in the entire period. (Yes, I’ve learned my lesson.)
Now, the good news. The biggest winner in the year was Ryanair with a total return of plus 57%. It started the year at €19.07 and ended at €29.56. I also added to my holding twice, in April at €18.23 and in November at €25.60. Ryanair’s weighting in the portfolio more than doubled, to 12% at year-end.
Another big winner was Phoenix Group Holdings, which has been by far my largest holding for many years. Its total return (in Euros) was plus 48%, made up of 37% growth and 11% dividends. My main regret now is that I took too much heed during the years of advice to reduce my exposure to a single share, which resulting in me selling a portion of my Phoenix holding, but thankfully not too much.
The decision to reduce my Apple exposure at end 2024 and part-replace it with Nvidia also worked out well. In 2025, Apple delivered a total return of minus 4.1% (in Euros); the corresponding figure for Nvidia was plus 22% (plus 29% in dollar terms). I would have done even better if I had waited until after the DeepSeek wobble before investing, but hindsight is 20:20. Having learned my lesson from Novo Nordisk, I reduced my exposure to Nvidia towards year end.
Summarising, the total portfolio return for 2025 (net of expenses) was 13.1%; the detail was as follows (for every €1,000 at the start of 2025):
Fund at start 2025: €1,000
Dividends and Gains: +€132.12
Withdrawals: -€62.59
Expenses: -€5.54
Fund at end 2025 €1,064.00
Expenses were slightly higher than 2024, due mainly to having to pay 1% stamp duty on the Ryanair purchases. The comparable rate in the UK is 0.5%; there’s none in the US. Platform charges are excessive in Ireland, but I think I have as good a deal as can be got at present, thanks to my pension adviser.
The next update will discuss cash flows and liquidity management.
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Just thinking out loud here, but does an ARF allow for the purchase of the short ETFs?
The smaller constituents of a, for example, S&P 500 tracker aren't worth putting too much thought into because they represent a miniscule proportion of overall investment.
However, most of the heavyweight constituents have short, sometimes leveraged short, ETF's.
If one wanted a hands off investment but REALLY wanted to avoid the index because it's too heavily invested in a company they think is grossly overvalued, perhaps a tracker, in combination with an ETF that shorts the large cap component they hate, is worth consideration.
Of course, grossly overvalued companies can remain overvalued a hell of a long time - and even become even more overvalued.
It'd work better if you could just directly short the company you didn't like as you would offset the shares owned in the index and invest the proceeds elsewhere - but I don't think ARFs allow shorting.
The smaller constituents of a, for example, S&P 500 tracker aren't worth putting too much thought into because they represent a miniscule proportion of overall investment.
However, most of the heavyweight constituents have short, sometimes leveraged short, ETF's.
If one wanted a hands off investment but REALLY wanted to avoid the index because it's too heavily invested in a company they think is grossly overvalued, perhaps a tracker, in combination with an ETF that shorts the large cap component they hate, is worth consideration.
Of course, grossly overvalued companies can remain overvalued a hell of a long time - and even become even more overvalued.
It'd work better if you could just directly short the company you didn't like as you would offset the shares owned in the index and invest the proceeds elsewhere - but I don't think ARFs allow shorting.
Colm Fagan
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As promised in yesterday’s update, cash flows for my ARF in 2025 were as follows (for every €1,000 in the fund at the start of the year):
Cash at start: €117.4
Dividends: +€43.5
Pension withdrawals: -€62.6
Fees: -€5.5
Share purchases (net): -€84.1 (€204.5 purchases, €120.4 sales)
Cash at end: €8.7
Liquidity at the start (11.7%) was much higher than usual: corresponding figures at end 2023 and end 2022 were 0.6% (2023) and 2.6% (2022).
The unusually high liquidity at end 2024 was simply because I sold a significant chunk of my Apple holding on 30 December and hadn’t replaced it by the 31st.
As it happens, my eventual choice of home for most of the Apple proceeds – BP – wasn’t particularly inspired: total return of 3.5% in the year (minus 2.5% capital, plus 5.9% dividends).
I felt quite nervous about markets at the start of 2025 and was strongly tempted to forget about my commitment to keep as close as possible to 100% in equities – but I kept the faith. I know that the market will fall precipitously sometime and when it happens I’ll kick myself for not listening to my inner coward, but my commitment to being invested through thick and thin has paid off handsomely over the last 15 years, so I’ll continue to live by the sword.
As mentioned in previous posts, my belief in the Equity Risk Premium and in the futility of trying to time the market mean that I believe that keeping money in cash (or in short-term instruments) is equivalent to investing in a fund with a management charge of 4% a year, possibly more. I can’t understand those who believe in keeping a high proportion of their pension in short-term assets (I’ve even heard some say that they keep two years’ expenditure in cash).
Anyway, it was back to business as usual by year-end. Liquidity at 31 December 2025 was €8.7 for every €100,000 in the fund at the start of the year (0.8% of fund value), just enough to cover January’s pension payment) .... and I'm even more worried now than I was this time last year about markets being too high!
Cash at start: €117.4
Dividends: +€43.5
Pension withdrawals: -€62.6
Fees: -€5.5
Share purchases (net): -€84.1 (€204.5 purchases, €120.4 sales)
Cash at end: €8.7
Liquidity at the start (11.7%) was much higher than usual: corresponding figures at end 2023 and end 2022 were 0.6% (2023) and 2.6% (2022).
The unusually high liquidity at end 2024 was simply because I sold a significant chunk of my Apple holding on 30 December and hadn’t replaced it by the 31st.
As it happens, my eventual choice of home for most of the Apple proceeds – BP – wasn’t particularly inspired: total return of 3.5% in the year (minus 2.5% capital, plus 5.9% dividends).
I felt quite nervous about markets at the start of 2025 and was strongly tempted to forget about my commitment to keep as close as possible to 100% in equities – but I kept the faith. I know that the market will fall precipitously sometime and when it happens I’ll kick myself for not listening to my inner coward, but my commitment to being invested through thick and thin has paid off handsomely over the last 15 years, so I’ll continue to live by the sword.
As mentioned in previous posts, my belief in the Equity Risk Premium and in the futility of trying to time the market mean that I believe that keeping money in cash (or in short-term instruments) is equivalent to investing in a fund with a management charge of 4% a year, possibly more. I can’t understand those who believe in keeping a high proportion of their pension in short-term assets (I’ve even heard some say that they keep two years’ expenditure in cash).
Anyway, it was back to business as usual by year-end. Liquidity at 31 December 2025 was €8.7 for every €100,000 in the fund at the start of the year (0.8% of fund value), just enough to cover January’s pension payment) .... and I'm even more worried now than I was this time last year about markets being too high!
Inverse ETFs are not the same as short selling. They rebalance daily, which could lead to large losses if held over time.
Do you specifically want to short the largest shares i.e. profit from their price depreciation, or would it be better to e.g. buy an S&P500 ex. Mag 7 ETF? Or even an equal weight index?
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If you wanted to do this couldn't you short it outside the ARF?
I'd be interested in seeing what the return for a world passive index was last year and then for a comparison to be done over, for example, cumulative 1, 3, 5 and 10 years. I think, last year, @GSheehy provided figures and @ClubMan put a table together. This exercise could then be repeated annually and overtime it may help people to decide the relative merits of a go-it-alone DIY approach versus a passive approach.
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This?
Performance Update for Colm Fagan's ARF
it is down to my three rules for choosing investments: Tax, Tax and you guessed it. Tax is important but surely shouldn't be the main or only (never mind threefold) reason for choosing an investment option?
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Performance Update for Colm Fagan's ARF
As I say, if anybody (ideally the originators of the original annualised returns data) wants to provide cumulative return figures (for each year?) I'm happy to add them to the table or a second table. The reason I'm interested in the figures are as follows. I've listened to a few different...
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