1. Not An Apple to Apple Comparison

   There is a difference in the fund categorisation by Lipper and Fundsupermart.com, and this affects what type of funds are considered peers for a given category.

   For example, the funds that won the global equity category in the 2012 Lipper Award are the Pacific Dana Dividen and Pacific Focus18 funds (for the 3 Years and 5 Years periods, respectively). However, our recommended fund for this category is the Alliance Global Equities Fund, while these two Pacific Mutual funds are not in our recommended funds list. This is because they are categorised as Malaysia Focus funds on our platform.

   This discrepancy is due to the fact that the Pacific Dana Dividen and Pacific Focus18 funds invest a significant portion of their net assets in Malaysia equities. This is different from the Alliance Global Equities Fund which invests in 15 countries all over the world and has no such apparent overweight on any one country's equities. As such, we think that these funds should not be lumped in the same basket like Lipper has done.

   Adding the fact that Malaysian equities have been relatively resilient compared to global equities (Malaysia was among the top 10 performing equity markets in 2007, 2008, 2010 and 2011), it is almost certain that a 'global equity' fund with a large exposure to Malaysian equities will outperform a 'bona-fide' global equity fund for the past 3 and 5 calendar years.

2. IT’S NOT ALWAYS ABOUT PAST PERFORMaNCE NUMBERS

   The Lipper Award is given out to the fund that has the highest Consistent Return score, which means that the fund is the best in terms of "consistency and risk-adjusted returns" among its peers, according to Lipper. To put simply, past performance is the only metric considered. This is all good as a Lipper Award is a retrospective recognition of a fund’s performance track record.

   However, investors would be better served with a more forward-looking approach. This means that a fund’s non-quantitative factors need to be considered as well. For example, we would actively highlight funds that we know to be invested in securities that we feel are likely to see sub par returns in the near future, no matter how well it has outperformed in the past.

   In light of certain investments actually going bad, we have been scrutinising fund performance with greater care and advising investors accordingly (see our latest findings, "Switch Sell Your Fund If It Holds Ample Zone Sukuk").

Conclusion

While winning the industry standard Lipper award certainly lends credence to a fund's performance, investors should understand the context in which fund outperformance is determined, and that the funds are awarded based solely on their past performance. As always, investors are encouraged to do their own due diligence before investing, and also to check out the articles on Fundsupermart.com.

Related Articles:
Chart Talk: Pacific Focus18 Fund [2012 Lipper Award Winner]
Switch Sell Your Fund If It Holds Ample Zone Sukuk