How a Great ILP Fund Fell - Fortress Fund A (A Review)

Updated: Feb 15

When I first joined the industry and realized how much I love investing, I was still a wide-eyed kid at the time. I didn't know back from front.


It may seen a little strange to you. After all, my clients know and refer to me as an Investment Specialist, especially after the Money FM interview.


Some of them didn't even know that I was a Financial Consultant (my title can make it a bit hard to tell).


There's a whole bunch of articles I've written about how little I knew back then, and how much I still don't know even now.


I just knew that the concept of investing - the idea that you'd lend out money to create something of higher value and be rewarded for delaying your gratification - was probably one of the best things I'd ever heard of at the time.


It was so exciting. READ ALSO: MoneyFM: Investment Strategies With Money Maverick


But I was also a Financial Consultant. It's been commonly discussed in the Financial Space online that there are inherent conflicts of interest with clients. And I don't disagree - not completely, anyway - and I haven't disagreed in years.


In those days a few short years ago, on Hardwarezone and other forums, they would kick and protest against our investment plans and call us scammers and losers.

Until the mention of Fortress Fund A.


Fortress Fund A - The Glory Days


Fortress Fund A was the Go-To ILP Fund to defend against naysayers and critics of ILPs or Active Management. Despite a hefty Bid-Offer Spread and a management fee of 1.6%, and other charges - Fortress Fund A was outperforming the STI ETF by such a large margin for the same , or even lower risks taken - that it almost felt like it didn't matter.


The outperformance only seemed to escalate AFTER the Great Financial Crisis, which is something that popular research has determined is a difficult thing for active funds to do, resulting in much lower returns than benchmarks for some countries.


For years and years, since 2006, Fortress continued to outperform the benchmark - the STI ETF - at every turn. Occasionally there would be small losses to the STI ETF, but they looked so insignificant in the larger course of things that it didn't seem to matter.

A screenshot of AXA Fortress Fund A in 2014.

Notably, if you can see above: AXA Fortress Fund succeeded where the STI ETF failed - by overtaking its high from 2007, while the STI ETF has yet to regain its previous value from over 13 years ago.


For a long time, when insurance agents were being slammed for selling ILPs, they could always fall back on Fortress Fund A - where their client returns were outperforming DIY investors.


Not a great defense necessarily, but certainly better than being bashed without a defense.


Fall From Glory


Ultimately, a full chart reveals that Fortress' started to lose momentum rapidly after 2017 - and by 2018, the STI ETF had narrowed the gap between their performances from inception.

Fortress Fund A vs the STI ETF vs the SG Category

In less than 2 years, any Fortress Investor who was making significantly more money than the naysayers for years and years had completely lost their advantage.


2 Things We Can Learn


1) Past Performance doesn't...


...equal future performance, sadly.

RIP

I'm not necessarily going to dunk on active management either, because there's no shortage of funds which have outperformed their indices consistently [especially in inefficient areas, which you can read about here].


One notable example is the Templeton Global Bond Fund (USD), which took over 14 years before it overtook its index. Current trends seem to indicate that the index might just take it back, but we'll see.

Templeton Bond Fund - years of underperformance before outperformance

But like tasty milk, you want to make sure that you have someone who is keeping an eye on the expiry date. Someone who is monitoring and has set parameters to ensure defensive or aggressive investment action when its necessary.


Ideally a professional, or an Investment Specialist.


READ ALSO: Why you should invest aggressively NOW (and how you still can have peace of mind)


2) Funds Follow Benchmarks, but With Variation and Risks


The Fortress Fund had a little bit more operational room than the STI ETF, as you can see here.

Allocation of Fortress Fund A, 2020

Comparatively, the STI ETF could only strictly mimic the STI Index, which was simply the Top 30 'Blue-Chip' stocks in Singapore.


I'm actually genuinely surprised that Fortress Fund A stopped outperforming the STI Index, because I have small positions in Hong Kong and Thailand that certainly did much better than the STI Index.


But sometimes that's what happens.


Generally when you purchase a Fund, you want to ask yourself several questions: a) Are there any funds in the same range of sector/geography and fees that would be better?


b) What factors do you consider important for your own investment journey/time horizon that helps you to decide which fund is better for you?


c) How does the fund differ from the benchmark in terms of invested assets and management strategy? Are there any severe repercussions?


These, along with quite a few questions, are things that you would want to understand before investing in anything - rather than following recommendations online or a cute little Top 5 list.


Some Closing Thoughts...


I think some advisors might get angry at me. After all, I'm a Consultant myself. Why would I want to bring up an active fund that had such a great track record and eventually failed, when our job often consists of selling such active funds? Ultimately, this blog is a personal blog, not a business blog.


Blogs are meant for education (and occasionally, entertainment). And in investing, not everything works out the way we want it to. I would love to spend all my time highlighting benchmark beating funds. I don't always get to.


Doesn't matter whether its a Stock, Fund or ETF. As an investment specialist, I consider it my job to always look out for your best interest so you never fall as well.


Money Maverick

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Money Maverick is a Licensed Financial Consultant with MAS, who specializes in Investments and Critical Illness Insurance. You can reach out to me above.


As one of the Top Financial Bloggers in Singapore (Feedspot, Withcontent.co), I would be happy to answer any emails and questions you may have, as I have been doing for my readers over the past few years - especially about Insurance and Investing, as it is my forte of personal and professional knowledge.


If you have any such questions about the articles and how it may apply to your finances, you can feel free to drop me a message through any preferred medium (if you prefer privacy).

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The views on his blog are strictly of his own opinion and have no affiliation to any of the companies he works with.

Here are some of my resources on:


1) Investing: Why you should invest aggressively NOW (and how you still can have peace of mind)

2) Insurance: The Newest, Rising Critical Illnesses in Singapore (2019)

3) Retirement and Leverage: Leveraging a Private Annuity, Pros and Cons (ft. Jamus Lim)

4) Spending and Saving: The Biggest Spending Mistakes You DIDNT Even Know you were Making (and how to avoid them)

5) Job Assessment: A Case Study on How a $6k/mth GIrl makes MUCH more money than a $10k/mth Guy

6) Financial Optimization: How I Avoid the Largest 'Fees' of All

The views, opinion and information in all articles are those of the author.

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