As an avid reader of this blog, I have always found posts on unethical entities amusing to read ( Read -> taking down unethical consultants).
As your knowledge of investments deepens, you become more aware of the data and information consumed. On the downside, being the optimal target market, you also become a target for ads.
The troubling part of it all is to receive questionable repetitive ads. After digging to the source, Lo and behold, it all comes to Wolfgang Creatives.
Having worked with several teams of digital marketers, I really find myself aggravated by their style. Especially the '18% Per Annum Return'. The fund in question is...
What is Fundsmith? [Strengths]
Fundsmith, or specifically Fundsmith Equity Fund - is an Accredited Investor fund from a London based investment company. It is run by founder and fund manager Terry Smith (hence the name).
Because Accredited Investor Funds are meant for rich people who make $300,000/yr or higher, it is only available to us poor people through ILPs offered by insurance agents from AXA, Tokio Marine and most recently, FWD.
Fundsmith has some prominent strengths:
a) Strong Investment Philosophies that Manage Risk
Fundsmith believes in sourcing, buying and holding a limited number of strong companies. This has resulted in a Sortino Ratio of 1.22 compared to its benchmark of 0.59, which suggests a much smaller downside volatility. In English, it basically means that even when the fund experiences losses, they often aren't very high or very sudden - much more so than the benchmark its set against.
b) Has NEVER Lost Money in ANY 1 year Period:
Since it's inception in 2010, the fund has never lost money in any given 1 year period, likely due to the point above.
What is Fundsmith? [Weaknesses]
a) Benchmark Performance: The biggest weakness to falling for the 18% ad is that Fundsmith is underperforming its benchmark: while the 10 year return is higher - the recent years have had a significant underperformance/
Fundsmith's benchmark is the MSCI All Country World Index (Growth).
As a retail investor, I only invested with a financial advisor for several reasons:
i) They have experience in trading, optimizing or capping downside risks. In my last article on Differentiation, I talked about how both my advisor and fee-based advisories like Providend both provide this.
ii) They provide higher returns net of fees
iii) They reduce risks
iv) They save time.
Declining Performance: Because the 10 year return of Fundsmith is better than the 5 year return, it shows me that recent performance is weaker than past performance on average.
This is even though the last 5 years have been especially good for investments like Technology and Clean Energy in the US. Investors who are looking for 18% per annum returns may be startled to realize that the last 3 and 5 years has made considerably below that.
How to Do Better than the '18% Annualized' Investment
1) Don't Invest With People Who Can't Be Identified
There's some irony here coming from a blogger choosing to keep himself anonymous, but I don't offer investment services nor do I get compensated for recommending investment services.
Not being able to do a background check on the investment claim or claimant is an easy way to get pressured into a sale.
2) Recognize that it HASN'T, and WON'T stay at 18% forever anyway
People's expectations of returns has just started to become ridiculous and absurd. I was helped in sourcing and invest in funds that outperformed the SNP500 by almost 100% last year, but because we have seen a scenario where the as projected annualized returns as high as a prospect liked, the prospect ended up buying the SNP500 instead. Why complain about consultants overpromising if you're not even aware of how annualized/averaged yearly investments work?
READ ALSO: Why You Should Be Cautious of Investments Promising MUCH MORE Than 10% (especially without context)
From the graphic above you can see that there has been no Financial Crashes since 2010, which skews the results of Fundsmith too favorably.
Any investor who eventually experiences a market crash while invested with Fundsmith may be in for a rude awakening. For context:
Without a market crash, the SNP500 annualized return is about 16%. With 2 market crashes, the SNP500 annualized return is between 5 and 6%.
This is an easy example of the difference between absurdity and reality.
It's also a reason why you have so many black sheep in the Financial Industry, because someone who is open and accountable can be anonymously reported while others hiding behind anonymous ads will lure greedy people in without context.
3) Invest in a More Aggressive Index
We often hear about the VRWA ETF or the IWDA ETF (MSCI ACWI basically) but the Growth variant is rarely discussed or talked about, even on financial forums. It is said that Growth and Value are cyclical, but this outperformance should at least be considered, explored or researched if it could be an option to get a higher result with liquidity and lower fees than the 18% fund.
4) Invest in a more aggressive category in the long term with an Investment Specialist
The 5 year annualized return for Fundsmith is about 17.5% (as of November).
By exploring outside of the US or in concentrated sectors with MAS-approved funds and no leverage, my own portfolio with an investment specialist has a 5 year annualized return of closer to 38% net of fees.
At one point prior to corrections, it was backdated for over 40%. READ ALSO: Why you should invest aggressively NOW (and how you still can have peace of mind)
I expect that this average will drop a little this year because last year's return skewed the average tremendously, but my portfolio is still doing around 30% YTD.
This gives me a lot of assurance that my diversified money is growing well to prepare me for big future purchases like the home that I will die in, or a significant retirement fund.
Closing Thoughts: But What About Money Maverick?
Money Maverick is a Top 20 Investment Blog (withcontentco.) in Singapore and here we enjoy talking about investing. As a result, some of the writings that speak about investing may show some bold and outrageous looking claims, especially derived from my own personal portfolio.
The difference between Money Maverick and such ads is that: The ad isn't accurate: There is a huge difference between 'per annum' and 'annualized', because a 'per annum' return suggests a regular and consistent return. An annualized return is more accurate because it suggests an average-d return over time. Comparatively, MAS has issued multiple warnings this year about such anonymous ads that are inherent exploitative.
Imagine if anyone actually believed they would have these kinds of sustainable returns long term, spanning across a 30 year period.
If such a thing were true, investing $10,000 now would net me $1,433,700 before I turned 60, or a 14337% return.
There's always going to be a lot of good funds.
But to project 18% long term?
That's just insane.
Edited by Tina. Do Like, Share and Subscribe to the blog for more articles like these. You can also send me an email if you have any enquires.
If you are looking to invest and are seeking expertise advice from advisors with integrity, I would be happy to refer you some.