Re: Looking out the rear window
Hi, Sir Ivor
<!--EZCODE ITALIC START--> “The effect of charges is illustrated most clearly in the new Regulations. Trying to distil out the fairly miniscule effect of charges from past performance is futile.”<!--EZCODE ITALIC END-->
The effect of charges is not “fairly miniscule”; it is often extremely significant.
The new regulations are certainly useful, but they illustrate the effect of charges against a hypthetical future return which is almost certainly not the return which will in fact be achieved. This can lead to its own problems; how many posts have appeared on this board from people who evidently believe that there is some implication in the charges illustration that the assumed return is likely to be achieved?
A comparison of past performance against an index shows the negative effect of charges (and the positive or negative effect of stock selection) in the context of an actual return. If, as is so often the case in Ireland, the manager is a closet tracker then the bulk of the difference between the actual return and the index return will be accounted for by charges and (unless the manager changes his strategy, or the rate of his charges) <!--EZCODE ITALIC START--> there is a better than random chance that it will persist<!--EZCODE ITALIC END-->. Thus the comparison, coupled with information about stock selection, volatility, etc, is a useful tool for investment analysis.
I think we all agree that past performance on its own is useless for predicting future performance relative to other products (the purpose for which it is usually used in Ireland) or for predicting future performance in absolute terms. Past performance measured against a benchmark index, and coupled with other information, is a useful investment analysis tool. In my view it should not be featured at all in advertising aimed at consumers, but product providers should be allowed to publish and disseminate the information, preferably on standard terms as Mithrandir suggests.