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 for one year, two years and even five 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.
“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 on email@example.com.
|Fund / Vehicle||Year||Strategy||AUM||CAGR||Max drawdown|
|Eckhardt Trading Co
|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!