FUNDAMENTALS
PIETER HUGO: Staying the course ensures good returns on unit trust investments
Investors may be tired of hearing the same old cautionary tale to "avoid a short-term view" or "ignore the market noise". Yet there is good reason why asset managers insist on repeating this principle: all the data show that it is very harmful to take a short-term view when making your investment decisions. Trying to chase the best-performing funds by switching to them based on their short-term past performance is actually one of the best ways to destroy the long-term value of your portfolio. Equally damaging is selling a fund when it experiences short-term underperformance. Yet, unfortunately, this destructive behaviour is strikingly prevalent among South African investors.The graph illustrates how investment flows are closely following the previous one-year relative performance of a typical conservative balanced fund over the past 10 years (one-year ranking depicted by the red line). It highlights how the fund’s short-term returns have driven the fund’s net investment flows in the...
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