Nowadays investment groups provide all sorts of information on their range of funds, but when it comes to performance, the data provided on a fund’s factsheet can be superficial. 
Generally, investment groups will highlight a fund’s absolute and/or relative performance, and not necessarily against its investment objective/s. It then becomes quite hard for investors to interpret the data. For instance, an active equity manager might be measuring their performance in line with their investment approach, which might be over the long term, but this is often not articulated in the fund’s factsheet.
In a lot of instances, managers measure their success relative to a peer group of funds, but peer groups typically include a range of funds with different objectives and investment parameters, and therefore, are not relevant, in our view. You would not compare a Ferrari with a Fiat. You might admire the car maker’s fleet of vehicles, but by the design, they will each provide a very different experience and journey.
On the other hand, a manager’s factsheet might highlight the fund’s performance versus its benchmark index, but this too can present an issue.
Take for example a fund that invests in physical property or a fixed income fund. The benchmarks quoted sometimes include indices with investments that may hold un-investible securities, and therefore cannot be replicated. Meanwhile, equity indices tend to represent a fraction of the investible universe. They can be concentrated at a country, industry or stock level, and they will include a range of companies of varying quality. In other words, they can be a poor representative of the listed stocks universe, and it can be just as misleading to look at a fund’s performance versus its benchmark through one lens.
The point is that a fund’s performance should be measured against what its manager is aiming for, and such objectives ought to be tangible, achievable, and above all, realistic to what the fund is investing in. These investment objectives should be highlighted in the fund’s factsheet.
Also, it is quite usual to find a fund’s performance figures quoted over shorter time frames: the last three months, year to date, last three and five years.
However, the trouble with such cumulative figures is that they do not show you a fund’s sensitivity to certain market conditions, for instance when markets are weak (or strong). Hence, it is also useful to look at the fund’s performance on a discrete calendar basis, as a fund’s five-year track record tells you nothing of how it behaved in volatile periods, such as in 2008, 2009, 2011 and 2018.
Lastly, we would note that there are some investment groups that continue to quote performance figures gross of fees. Again this is something to watch out for, because in the real world, investors are paying a fee, and so such figures ought to be quoted on a net basis.
Amaya Assan is research manager at Square Mile Investment Consulting & Research. The views expressed above are her own and should not be taken as investment advice.