Performance Update for Colm Fagan's ARF

Colm Fagan said:
Another reason for publishing is to expose the price gouging in this market. My ARF provider does an excellent job. Nevertheless, I think they grossly overcharge for what is essentially basic bookkeeping and payroll.
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This is oversimplisitic and ignores the regulatory landscape. Qualifying Fund Managers aren’t two men and a dog doing ‘basic bookkeeping and payroll’.

The two biggest risks you’re ignoring are:

1) The risk of the lowest cost provider collapsing or perpetrating some sort of fraud against you; people should view the regulatory ‘home’ for their pension or ARF as very serious stuff; cost shouldn’t be the main driver.
2) Your investment approach is, best case, costing you money and, worst case, will blow-up your ARF. My sense is that you’ve been lucky to have ARF’d right when the world started to recover after the GFC.

For the avoidance of doubt, I enjoy your contributions and you’re clearly an extremely intelligent person. I just disagree, fundamentally, with your views on certain matters.
 
The earlier thread on my ARF investment strategy was closed last evening, before I had a chance to refute false and derogatory claims (almost all deliberate, I'm sure) about my competence to look after my ARF investments. I'm thinking particularly about @Gordon Gekko and @Louisval. Both almost certainly knew that nearly all of what they were wrote about my approach was completely untrue. I can't allow those false claims to stay on the record.

First of all, so as not to lose sight of the woods for the trees, @AJAM wrote
AJAM said:
A few pieces of Context, Colm's performance is far superior to the vast, vast majority of ARF investors who would be mostly invested in "Lifestyle" or balanced funds which would include a high proportion of Cash or Bonds.
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@AJAM is right, of course. All the evidence shows that someone my age (now 75) would be strongly advised by @Louisval, @Gordon Gekko and their like to invest a significant proportion of my ARF in bonds and cash, given particularly that the ARF is now my sole source of regular income other than the contributory OAP: I don't have any other pension entitlement.
I recounted in my posts what actually happened over the last 14 years. @Gordon Gekko and @Louisval gave theoretical reconstructions of what might have transpired if ARF holders had invested in certain funds, which presumably were chosen with the benefit of hindsight because they were seen - thirteen years later - to have been top performers. There is no evidence whatsoever that any real person ever followed the theoretical course of action outlined.
Secondly, the performance of my ARF is net of all charges (even the once-off fee in 2024 to my pension adviser for changing ARF providers). On the other hand, the unit-linked funds mentioned by my detractors are all execution only and don't allow for the extra advisory and ARF provider costs.
Thirdly, people tend to focus the comparison on the position at end 2024 when, as I readily admitted, I had just experienced a major fall in the value of one investment. Despite that, the results were still excellent.
Here is the same table, with an additional column added to show which fund was ahead at various year-ends:
1736333653090.png

At 10 of the 13 year-ends, my ARF (net of all charges) was ahead of the (completely theoretical) index tracker and the (equally theoretical) managed fund (before ARF provider and adviser charges). Thus, in every one of those years, I would have had to withdraw a smaller percentage of my fund in order to meet the regular withdrawal (which broadly increased in line with inflation), for which I was given no credit.
So much for @Louisval referring to me as "an experienced finance man seriously lagging a reasonable benchmark"
Louisval said:
the previously stated underperformance of Colm's fund. (The increase is marginal not the underperformance - the cumulative revised under-performance over the 10 years is over 25%).
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What "previously stated underperformance" was @Louisval referring to? I would very much appreciate if he/she could do the honourable thing and withdraw that and similar false statements, but I fear I'll be left waiting. The same applies to @Gordon Gekko who has supported every claim of my underperformance as well as adding their own completely false claims. For instance, @Gordon Gekko's final comment in the last thread was priceless:
"Your investment approach is, best case, costing you money and, worst case, will blow-up your ARF."
For what it's worth, my ARF is far less likely to blow up than one effected through an institution, because there's a direct link to the underlying investments with no intervening institution that could "blow up" to use @Gordon Gekko 's words.
@Gordon Gekko also claimed that I was spending a lot of my time on my ARF. I don't know how many times I've told readers that I hardly ever look at it. That also shows in the activity in the fund. In the first 50 weeks of 2024, there were just two small sales, amounting to less than 2% of the fund. There was no activity whatsoever in 2023. Dividend receipts were enough to pay the 6% income in its entirety. If my money were invested instead in unit-linked funds, I'd have had to sell some units every month to fund the withdrawals - and presumably I would have to seek advice from a pension consultant (at a cost) on which funds to sell. I've had to spend far more time responding to stupid comments on AAM than I ever spent studying the investment performance for my ARF.
Finally, an apology to the contributors who asked constructive questions - and there were many of them. I'm sorry that I haven't been able to answer them, because of having to respond to my detractors.
I enjoy writing these updates and some of the comments by others are excellent and thought-provoking; however, it's just not worth it when I have to endure ignorant sniping by anonymous critics. I may just stop providing updates.
 
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Folks

Colm has asked me to reopen the thread but it was the source of multiple reports last time and took up a lot of time of the moderators.

I will reopen the thread but will close it again if it becomes time consuming again.

Note that these guidelines will be fully enforced
  • Disagree as much as you like, but no abuse or snide remarks
  • At the same time, be a bit thick skinned. If someone isn't nice to you, ignore them. Or deal with their point. If you abuse them in return, you will be banned from the thread.
  • Do not accuse anyone of trolling. If you think that they are, report them.
  • Stay on the topic which is Colm's ARF return and comparing it with a passive investment
  • If you want to discuss your own approach to investing start another thread.
 
My ARF’s performance for the first quarter of 2025 is a tale of woe. The return was a negative 4.7%.

And it all seemed so promising in early January, when I was giving my 2024 performance update (#70). That told of my decision to sell more than three-quarters of my Apple shares in December at $252.82 a share, causing its weighting in my portfolio to fall from 23.8% at end November to just 6.5% by year end. By 31 March 2024, Apple’s price had fallen 11.3% since year-end, down 15.1% in Euro terms because of the weaker dollar, so the decision to sell the bulk of my shares seemed to have been a smart call. I also converted most of the net proceeds to Euros, which saved me from some of the dollar’s fall.

Unfortunately, I reinvested close to half the sale proceeds in Nvidia, a world leader in AI, at $137.20 a share, also in December. Its share price rose to over $140 in January, but it tanked when the Chinese AI company DeepSeek announced that it could do wonders with older, cheaper technology, that it didn’t have to spend an arm and a leg on Nvidia’s more expensive products. By 31 March, Nvidia’s share price had fallen even more than Apple’s since year-end, down 19.3% in dollar terms, down 22.7% in Euros.

However, the biggest faller of all in the quarter was Novo Nordisk, the Danish pharmaceutical company, which had been my star performer to mid-2024. My 30 June 2024 update (#38) told how the Novo Nordisk share price, at over kr.1,000, was more than five times its end 2020 level. I was sitting pretty because I had held onto my shares for the entire period. Happy days.

Unfortunately, I lost out badly by continuing to hold them all. The price was down 38% by 31 December, to kr.624.2. The misery has continued into 2025. The price on 31 March was down another 25% from year-end, at kr.469.80 a share, so Novo Nordisk has the dubious distinction of being my worst performer in the quarter.

Given all this bad news, the wonder is that the value of my portfolio only fell by 4.8% in the quarter. The main saviour was my largest holding, Phoenix Group Holdings. Its share price rose 12.3%, from £5.075 at 31 December to £5.70 at 31 March. The cash proportion was also much higher than normal at year-end, which helped to cushion the fall. Cash at 31 December was €11,737 per €100,000 of fund; the corresponding figure at 31 December 2023 was just €622, which is more in keeping with my strategy of holding close to 100% in shares. The only reason the cash was so high at 31 December 2024 was because everything seemed so expensive at the time. In hindsight, it was a fair assessment. The cash proportion had fallen to €3,351 per €100,000 of year-end fund value by 31 March 2025. Cash flows in the period were: dividends of €95 (the first quarter is always bad for dividends), less pension withdrawals €1,475, share purchases €6,864 and costs (platform fees, stamp duty and commission on share purchases) €141, all per €100,000 of fund at end 2024.

Despite the recent setback, the fund’s long-term performance vindicates my decision, on ‘retirement’ at end 2010, to invest close to 100% in equities. For every €1,000 invested in December 2010, I withdrew €1,168 in the intervening fourteen and a quarter years and the fund value at the end of the period was €1,810. Allowing for withdrawals, the equivalent compound return over the entire period, net of costs, was 10.4% a year.

Of course, I would be much better off now if I had cashed everything at end 2024, but I have no time for those who claim to be able to forecast turns in the market: they make fortune tellers look respectable.
 
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My all-equity approach to pension saving came in for considerable criticism recently on LinkedIn.

One contributor, a financial adviser, wrote that, while equity only may be the objectively best advice, most clients would find the volatility unacceptable. That response resonated strongly with me: the volatility of returns on my own fund terrifies me at times!

I now explain how I addressed the psychological challenge for my own portfolio. It may help others.

The attached spreadsheet shows the monthly progression of my pension account (ARF) from the start of 2014. ( I only have reliable monthly figures from that date). Market values fluctuated wildly at times. For example, the fund suffered a 15.7% fall in March 2020 and fell by more than a quarter in the two months February and March 2020. However, the smoothed return was positive every month for the entire period. The lowest (annualised) smoothed return was (plus) 4.8% in March 2020; the highest was 12.4% in May 2015.

At times, the smoothed value (SV) exceeded market value (MV) by a considerable margin, but the smoothing formula always brought them back into kilter: MV and SV crossed paths seventeen times over the eleven and a third years. The smoothing formula can be deciphered from columns C and F. I'll be happy to answer questions on it.

Of course, smoothed values aren't real. I could never liquidate my portfolio for its smoothed value - but I have no intention of liquidating it, so smoothed values aren't that unreal, especially when I know that SV and MV will come back into balance eventually.

The insight that led to my proposal for a smoothed equity approach to auto-enrolment was that smoothed values can be made real for AE scheme members: in that controlled setting all transactions with the fund, buying and selling, can be at smoothed values..
 

Attachments

  • Smoothed Returns 2014 to April 2025.xlsx
    85.6 KB · Views: 87
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Hi @ClubMan. One of the main purposes of smoothed returns is to soothe the nerves at times like this!
As can be seen from the graph, the fund earned a negative 6.75% in March 2025 but the smoothed return (annualised) was 9.85%. Smoothed and market values are now almost the same, as can be seen from the graph below, taken from the spreadsheet.

1746175796041.png
 
Colm Fagan said:
while equity only may be the objectively best advice, most clients would find the volatility unacceptable. That response resonated strongly with me: the volatility of returns on my own fund terrifies me at times!
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The other approach is to compare balances to the alternative (instead of % returns). So for example, lets say we have a 100% equity fund (down 25% YTD) and a conservative allocation fund (Down 8% YTD). The panicky investor wants to jump ship.
But if you show that your current balance in 100% equities is 1 million, but your balance if you had invested in the conservative allocation fund would be 500K psychologically you still feel that you are winning (which you are), even if you are down 25% YTD.
 
Thanks, @AJAM. Assuming I understand you correctly, that’s ok if the client has been invested for long enough to see the benefits of equity investment, but it’s a different story if they’re new to investing. A sharp decline near the start can cause severe palpitations - very severe if they’ve invested a lump sum near the top of the market!
The more I think of it, the more I believe that the ideal is to start with regular savings invested entirely in equities. The pain is bearable if values fall near the start. By the time the account value is significant, they should be able to take consolation from the experience you cited if they suffer a severe fall.
 
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Time for another update on my ARF!
January to June 2025 was arguably the craziest six months since I started managing my own pension thirty years ago, a craziness exemplified by the experience with Nvidia. In December, after selling three-quarters of my Apple shares (after it had risen so much in value that it represented 24% of my ARF at end November) I invested slightly under half the proceeds in Nvidia at $137.20 a share. By end March 2025, Nvidia was down over 20% from what I paid, to $108 a share, but it then bounced back, to $158 by 30 June, up 15% on the purchase price; however, the dollar fell by more than 12% in the six months, eroding a significant portion of the gain - all very confusing.
There was one consistent theme in the period, however, which was the exact opposite of what happened in the same period in 2024.
In #42 above, I remarked that my ARF has a barbell shape - “high dividend” and “low dividend” shares, with little in the middle. I said that 91.6% of dividends received in the first half of 2024 came from “high dividend” shares, but the value of “high dividend” shares fell by 2.2% while “low dividend” shares rose by 22.2%. I ended by speculating:
“I wonder if there was a fashion in the half-year for "low dividend" shares to do well and "high dividend" ones to do less well. I don't know enough about investments to make a call. If it is a fashion, will high dividend shares come back in favour at some future date?”

It didn’t take long to get an answer!!
In the first half of 2025, the market value of the “high dividend” shares rose by 20% while the value of “low dividend” shares fell 11%, in sharp contrast to what happened in 2024. That was in addition to “high dividend” shares delivering 89% (see note) of dividend income in the period.
If there is a fashion, it flipped in the first half of 2025!

As regular readers know, my strategy is five-pronged:
* to invest close to 100% in ordinary shares, and to keep the cash percentage close to zero;
* to invest in real businesses, not in funds (which is linked to the aim of keeping expenses low);
* to have a small number of holdings, so that I can keep track of them easily (currently, just 15 companies);
* to keep expenses low, and
* to keep turnover low (also linked to keeping expenses low).
I departed slightly from that strategy at end 2024 and in the first half of 2025.
The cash portion of the fund at end 2024 was much higher than usual at 11.7% (v 0.6% at end 2023). That was partly because there wasn’t enough time to reinvest all the proceeds from the Apple sale by year-end.
The turnover rate was also much higher than usual (it was almost zero in 2023). That's because I learned a lesson from not selling a portion of my Novo Nordisk holding in mid 2024 when price rises caused it to represent over a quarter of my fund before it fell likes stone (see post #70 above). When something similar happened with Apple in December 2024, I reduced my holding drastically. That worked out well. (I also sold Apple because I thought it too expensive, but it's dangerous to think that you know more than the market; I was just lucky with my timing).
The classic in terms of a holding that represent too high a proportion of my fund is Phoenix Group Holdings. I’m embarrassed to admit how much of my ARF it represents. I decided in the first half of 2025 to reduce my holding. It was a tough call, because Phoenix has served me well since I first bought into it more than a decade ago, but I made a move in that direction (not a big one: it's still my largest holding). All the sales in the half-year (€62 for every €1,000 of fund at the start of the period) were of Phoenix Group Holdings.
Cash movements in the first half of 2025 (per €1,000 of fund at the start) were as follows:
Cash at start: €117
Plus: Dividends: €26
Plus Share Sales: €62
Less Purchases: (€155)
Less Withdrawals (€29)
Less Fees (€3)
Cash at end: €18

The fund’s market value increased to €1,023 at 30 June 2025 for every €1,000 at the start of the year. Allowing for pension withdrawals of €29, the return for the half-year was +5.3%.

As mentioned in post #127, I also look at smoothed returns. Market value at 31 December 2024 was €1,528 (from a starting value of €1,000 at €1,000 on 31 December 2013); the smoothed value at that date was €1,396. Allowing for regular withdrawals (€45 in the six months), the market value fell to €1,429 on 30 April but had risen to €1,564 by 30 June. The smoothed value increased each month, reaching €1,425 by 30 June. Annualised smoothed returns for the six months were: 10.45% (Jan), 10.76% (Feb), 9.85% (Mar), 9.89% (Apr), 10.92% (May), 11.14% (June). Monthly returns were one-twelfth of these figures.
The graph of fund market values and smoothed values since 31 December 2013 is as follows:
1751560385235.png

Note: The split of the portfolio and of dividends between "high dividend" and "low dividend" shares wasn't as straightforward in HI 2025 as in 2024. In 2024, there were minimal transactions in the period, so it was easy to complete the split. In 2025, judgements had to be made on whether and how to allocate transactions and dividends. I tried to restrict the analysis to shares held for the entire period.
 
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I have been asked why the graph of smoothed fund values above has jagged edges in the early years but not in later years.
That's for the simple reason that money was withdrawn only once a year in the early years (causing a step reduction in smoothed fund value in the month it was withdrawn) but withdrawals were monthly in more recent years - when income from other sources dried up and I was dependent on the ARF for a regular income - so changes in smoothed fund value are .... smoother.
 
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