Performance benchmark

Here, we share our benchmark selection, methodology and contrast their performance with Mobius fund.

 

 

 

Introduction

Among the performance toolset to measure and compare performance returns, two are dominant: Absolute return and Benchmarking. The first one tells you the effective (real) rate of returns on your investment (absolute measure) whilst the second tells you how you have done compared to  a particular standard or benchmark (it is a relative measure).

Of course, there is the saying true (absolute) return is a key indicator, you can beat a benchmark and still lose money”.  Equally benchmarking tells you how well you are doing compared to other fund managers, investors or investment clubs. Mobius has a complete analysis of its (absolute) investment returns here

 There are three main sections below

  1.  comparison against two benchmarks,
  2.  benchmark selection and methodology,
  3. And the third one addresses consistency: How many times has your fund outperformed a benchmark over time?

Benchmark Comparison

We have identified two relevant benchmarks to compare Mobius performance: 

  • A FTSE-all Share index tracker,
  • A UK Fixed interest tracker  

The table below outlines the compound annualised returns (AERs). These are computed  for rolling investment periods of  12-, 36-, and 60-months to January 2021. These assume the same investment patterns as investment clubs; that is regular fixed monthly instalments: That allows like-for-like comparison. 

AER for the past ... 1 year 3 years 5 years
Mobius club  49.3% 24.1% 22.4%
FTSE allshare   14.1% 0.9% 2.6%
UK Fixed Interest 2.1% 5.5% 4.6%

 

Mobius fund performance has improved significantly over the last decade, beating consistently both benchmarks, as indicated in the table above and chart below. But it was not always the case. Mobius fund often did not beat its benchmarks for the first decade and its all-time AER at the time stood at 3.9%

 

Benchmarking is an important measure of performance. It tells you how well the fund has done relatively to its target(s). So benchmarking is a relative comparison.Your fund can make a loss, yet still beat the benchmarks, in a bear market or other stock market-wide fall. It might be interpreted to be “OK” to lose money and beat your benchmarks (this is probably the best we could have done). Equally, you could have had very good investment returns (say relative to fixed interest securities or bonds etc..) but if you were off the benchmarks, it still leaves the criticism that more could have been done.


Benchmark selection

How did we select our benchmarks? Until mid-2020, Mobius had invested in the London Stock Exchange (LSE), mainly in the FTSE all share listings as well as the AIM market. So it follows that the default benchmark would be a FTSE-all share tracker.

We also selected a lower bound tracker (UK Fixed interest), in the belief, that if Mobius cannot do better than a UK fixed interest fund (over a long period), it may as well invest in fixed interest securities, bonds or funds. The two benchmarks selected are:

  • FTSE all-share tracker (HSBC FTSE All Share Index A Acc (GB0031008443.L)
  • UK Fixed interest tracker: (Scottish Widows UK Fix-Int Trkr I Acc (GB0031905333.L)

The following rules ensure a fair selection comparison on like-for like basis for both benchmarks:

  • Lowest cost charges for a tracker (when selected in 2012)
  • Has monthly historical prices (5 years+) available (publicly &free) – Yahoo/Google
  • Use Accumulate unit class (dividends reinvested), also known as TR: Total Return
  • Regular fixed amount  invested on a monthly basis in these funds
  • Monthly valuations use closing price of last working day of the month

Revision: Since mid-2020, Mobius also started to invest in North American markets (notably NYSE, NASDAQ and TSE), so this calls for a review of the benchmarks to cater for the change in the portfolio’s profile. Although the majority of Mobius fund still resides in LSE, soon we will need to adopt a new benchmark, probably using a combined or composite approach of FTSE and other trackers.


Consistently beating the benchmarks

Whilst a few funds will beat the benchmarks from time to time, one indicator of true performance is how often does a fund beat the benchmark. 

  • How many times has your fund outperformed a benchmark over time ?

A good interpretation might be: how often has Mobius beaten the FTSE-all share benchmark over the last 5 years (60 months) for a “12-month rolling investment period” ?

In this example, take the period of the last 5 years from January 2016 to January 2021: There are 60 12-month rolling investment periods. The first 12-month rolling ends in  January 2016, so from January 2015 to December 2015, the second period from February 2015 to January 2016, shifting monthly, all the way to the 60th 12-month rolling period; that is January 2020 to December 2020.  For all these 60 periods, Mobius annualised return beat the FTSE-all share tracker 48/60 times (80%).

If you take a longer investment rolling period  of 3- and 5-year, then the consistency improves significantly (to January 2021)

  • Mobius beats FTSE-allshare 54 out of 60 (90%) 36-month  rolling investment periods
  • Mobius beats FTSE-allshare 60 out of 60 (100%) 60-month rolling investment periods

The table below summarises the consistency measurement for Mobius compared to its benchmarks for 5 years ending January 2021. By in large they look really favourable for the Mobius fund

Rolling investment period … 1 year 3 years 5 years
FTSE allshare (48/60) 80% (54/60) 90% (60/60) 100%
UK Fixed interest (41/60) 68% (55/60) 92% (41/60) 68%

 

Now, taking a much longer time frame, using all the data set available for both benchmarks; that is from July 2003, 2005 and 2007 respectively for the 1-, 3-, and 5-year rolling periods ending in January 2021. Then the consistency is not as good. For example, there are 210 12-month rolling periods from July 2003 to January 2021 and Mobius' return has outperformed the FTSE-all share only 48% of the time. This for example shows how in the first decade, Mobius struggled to beat its benchmarks.

 

Rolling investment period … 1 year 3 years 5 years
FTSE allshare (101/210) 48% (94/186) 51% (91/162) 56%
UK Fixed interest (136/210) 65% (129/186) 69% (107/162) 66%

 

A note on valuations:  it is much simpler  for an investment club to compute the consistency metric. Its UV is calculated monthly. It has 12 data items (UVs) per year, compared to a typical mutual fund which is valued once or twice a day, so even discounting for weekends and public holidays would lead to 250 to 500 readings per year. For ETFs and alike, it is more complex, as these are real continuous valuations through the business day (of course approximations are possible by using the closing price of the last business day of the month  or average price over a month). 

Work in Progress: Thank you for your visit. For any feedback, you may contact Mourad Kara.   Last update: September 2021. © Mourad KaraDisclaimers