Earlier this week, I wrote about a group of funds that have managed to grow at a compound annual rate of more than 20% for 20 years or more. The list comes from Chris Clarke at Lawrence Clarke and it is his definition of what makes a great fund.
Funds come and go and you will find all sorts with fabulous records forone year,two years and evenfive years. But, as I have written here many times, over periods like that, how are we to distinguish luck from skill?
As Chris puts it, "if you happen to launch a fund (at the right time) that is optimised on a certain set of market conditions (an equity bull market, a period of low volatility, a one off bet on the collapse of the US mortgage market), then you may well be lucky.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
"Admittedly it may be very smart of the person launching the fund to want to trade a certain set of market conditions, identify them, and launch his/her fund, make the money and disappear.
"But, unfortunately, this is not normally what happens. What normally happens is a fund is launched, makes great money for a few years, and investors rush into this new vehicle, which has apparently discovered the holy grail of investment or trading. This performance may then wane substantially in many instances, the fund loses all its prior gains and, in some cases, may blow up spectacularly".
So if we want to have a chance of identifying a great fund, we need to define it as being one that has "consistently made money through all sorts of market conditions for years and years, decades and decades". That doesn't mean that it won't have had bad periods, just that it is inherently robust.
Clearly, there aren't many of these funds around. But there are some. The list is below. You will note that Warren Buffett is included on it even though he is not a fund manager in the true sense of the word buying and selling entire companies is different to trading in the financial markets.
That said, however he does it (and whether he just has long-term luck or not), his returns do mark him out as the manager of a great fund. For more on all this you can contact Chris onchris@lawrenceclarkeim.com.
| Eckhardt Trading CoStandard Program(USD) | 1990 | Trend follower | $500m | 22.34% | 29.08% |
| Hawksbill Capital Management - Standard Program | 1988 | Trend follower | $74m | 22.11% | 61.78% |
| EMC Capital Management - Classic Program | 1987 | Trend follower | $142m | 21.75% | 45.16% |
| MJ Walsh & Co. - Standard Program | 1985 | Trend follower | $118m | 21.14% | 43.04% |
| *Blenheim GL Markets LP | 1986 | Discretionary | $2,535m | 22.06% | 41.2% |
| Tudor BVI Global Fund | 1986 | Macro** | $7,650m | 20.67% | 17.07% |
| Berkshire Hathaway(Per share book value) | 1965 | Long-only equities | ? | 20.3% | 9.60% |
| AUM=assets under management; CAGR=compound annual growth rate |
Source: Lawrence Clark
* Blenheim GL Markets LP No data available since 2010 hence this data is 1986 2010.
** Tudor BVI Global Fund Macro? Anyone can watch the Paul Tudor Jones movie online or read an interview with PTJ in Market Wizards (Jack Schwagger) These sources of information strongly indicate to me that he uses his own ideas for a trade entry (as opposed to a simple trend following method chosen from the many that prevail) and everything after that is about as "trend following" as it gets ie, sitting on winners and letting them ride, getting out of losing positions quickly, risking a small amount of capital per trade always having a plan before the trade is entered. Risk and money management are key!
-
Christmas at Chatsworth: review of The Cavendish Hotel at BaslowMoneyWeek Travel Matthew Partridge gets into the festive spirit at The Cavendish Hotel at Baslow and the Christmas market at Chatsworth
-
Tycoon Truong My Lan on death row over world’s biggest bank fraudProperty tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
-
House prices to crash? Your house may still be making you money, but not for much longerOpinion If you’re relying on your property to fund your pension, you may have to think again. But, says Merryn Somerset Webb, if house prices start to fall there may be a silver lining.
-
Prepare your portfolio for recessionOpinion A recession is looking increasingly likely. Add in a bear market and soaring inflation, and things are going to get very complicated for investors, says Merryn Somerset Webb.
-
Investing for income? Here are six investment trusts to buy nowOpinion For many savers and investors, income is getting hard to find. But it's not impossible to find, says Merryn Somerset Webb. Here, she picks six investment trusts that are currently yielding more than 4%.
-
Stories are great – but investors should stick to realityOpinion Everybody loves a story – and investors are no exception. But it’s easy to get carried away, says Merryn Somerset Webb, and forget the underlying truth of the market.
-
Everything is collapsing at once – here’s what to do about itOpinion Equity and bond markets are crashing, while inflation destroys the value of cash. Merryn Somerset Webb looks at where investors can turn to protect their wealth.
-
Value is starting to emerge in the marketsOpinion If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy traditionally expensive growth stocks on the cheap, too.
-
ESG investing could end up being a classic mistakeOpinion ESG investing has been embraced with enormous speed and zeal. But think long and hard before buying in, says Merryn Somerset Webb.
-
UK house prices will fall – but not for a few yearsOpinion UK house prices look out of reach for many. But the truth is that British property is surprisingly affordable, says Merryn Somerset Webb. Prices will fall at some point – but not yet.
