fyg evidence based model portfolios€¦ · index portfolio management involves, generally an...

FYG Evidence Based Model Portfolios

April 2020

Index and Active Portfolio Management

versus

FYG Planners Pty Ltd ABN 55 094 972 540 AFSL/ACL 224543

Registered Office: Level 2, 39 - 41 Alexander Street, PO Box 389 Burnie TAS 7320

Introduction

The purpose of this paper is to provide readers with a brief explanation of three investment portfolio management processes and a set of

data that highlights the performance of each process of various time periods. FYG Planners Pty Ltd believe the data provided should be

helpful to investors wanting to compare the historical results achieved by each investment management process.

Active investment management involves adopting an approach to managing investment assets that sees the individual or investment

professionals backing their opinion about the future performance of a market, market sector or individual security. It is the predominant

investment process used today around the world.

History has shown active management to be less than optimal in the longer term with well over 50% of active funds delivering returns

below their most relevant index over longer periods of time. History has also shown that over time investors have been generally

unsuccessful at selecting "future" superior performing managed investments. Studies in the USA by independent research firm Dalbar

Inc. have also regularly shown investor returns rarely match financial market returns due to poor investment timing decisions.

Index portfolio management involves, generally an institution, modelling their portfolio on a pre-determined, usually externally designed,

group of securities, known as an index. e.g: All Ordinaries, Dow Jones or MSCI. These portfolio's are passively managed and "track" the

relevant index deliberately.

The Asset Class portfolio's recommended by FYG Planners are based on a few academically accepted principles, from some of the

worlds leading finance experts, such as those noted below:

Genuine Diversification Reduces Risk - Harry Markowitz 1952 (Nobel Prize Winner)

Cost of Capital is the Investors Expected Rate of Return - Merton Miller 1961 (Nobel Prize Winner)

Risk & Return are Related - William Sharpe 1964 (Nobel Prize Winner)

Equity Markets are Efficient - Professor Eugene Fama 1966 (Nobel Prize Winner)

Small Cap Stocks outperform Large Cap Stocks but with Greater Volatility - Rolf Banz, University of Chicago 1981

Asset Allocation rather than Stock Selection and Market Timing Dominate Investment Performance - Garry Brinson, Randolph

Hood and Gilbert Beebower 1983 & 1991 study of 91 major pension funds in the USA.

Distressed Stocks (High Book to Market) Outperform Healthy Stocks (Low Book to Market) - Professor Eugene Fama and

Professor Kenneth French, University of Chicago 1992

Based on the above academic foundations, FYG Planners Pty Ltd have compiled this report from an Australian perspective to compare:

1) Our highly structured Asset Class equity portfolios with the Australian All Ordinaries Index and a composite of MSCI World Market

Index Unhedged & Hedged Indices.

2) Our Asset Class moderate, balanced and growth portfolios with index based portfolios using the same asset allocation benchmark.

3) Our balanced and growth portfolios with the most comparable wholesale balanced and growth funds offered by some of Australia's

largest investment management institutions.

We believe the long term results are so consistent and the evidence so compelling that we only recommend investors adopt this

approach to investing. For further information we recommend that you read our more comprehesive "Investment Philosophy" before

deciding to invest.

NB: You should also read very carefully the qualifying notes that follow the quantitative data in order to understand the

limitations of this document.

P. 1

Annualised

Return

Standard

Deviation

Annualised

Return

Standard

Deviation

Improvement In

Investment

Results

Standard

Deviation

Difference

25 years

from 1/05/1995 9.78% 14.94% 8.43% 14.34% 1.35% -0.60%

to 30/04/2020

20 years

from 1/05/2000 8.53% 16.34% 7.36% 15.86% 1.18% -0.47%

to 30/04/2020

15 years

from 1/05/2005 6.81% 17.75% 6.79% 17.49% 0.02% -0.26%

to 30/04/2020

10 years

from 1/05/2010 5.24% 10.29% 5.88% 9.60% -0.65% -0.69%

to 30/04/2020

5 years

from 1/05/2015 3.03% 12.54% 3.66% 10.46% -0.63% -2.08%

to 30/04/2020

4 years

from 1/05/2016 5.16% 13.35% 5.57% 11.00% -0.41% -2.35%

to 30/04/2020

3 years

from 1/05/2017 0.59% 11.41% 2.12% 10.31% -1.53% -1.10%

to 30/04/2020

2 years

from 1/05/2018 -2.38% 14.51% 0.03% 13.75% -2.41% -0.76%

to 30/04/2020

1 years

from 1/05/2019 -12.10% N/A -9.22% N/A -2.88% N/A

to 30/04/2020

1) The Asset Class portfolio includes holdings of 50% Large Cap stocks, 30% Value stocks and 20% Small Cap stocks using our

preferred investment manager. Returns shown are before investment management, administration or advice fees.

2) The Market Index Portfolio in this table is the All Ordinaries Accumulation Index ignoring any investment or trading costs.

3) Standard deviations shown indicates the Asset Class Portfolio to be less variable where the "Standard Deviation Difference" column

is a positive number noted in blue. If the figure is Red then the portfolio is more variable.

4) The investment return data series has been calculated using a software program provided by Dimensional Fund Advisers (Aust) Ltd.

The software is called "The Returns Program". FYG Planners Pty Ltd believe the data series to be accurate but do not accept

any responsibility for any inaccurate data calculated by the Returns Program.

5) The investment returns shown above are historical and in some cases have been simulated from the most appropriate market data.

Future investment returns may bear no resemblance to past returns as financial market returns may be very different as may be the

rate of inflation in future.

6) Investment returns for the Asset Class portfolio take into account past structural changes made by FYG Planners Pty Ltd to our

standard model portfolios.

7) Monthly data points and Annual rebalance data are used to produce this report.

April 2020

Asset Class Investing

Australian Equities versus Market

Time Period

Measured

Qualifying Comments

Asset Class Portfolio Market Index Result Improvement

P. 2

Asset Class Portfolio Market Index Result Difference

Annualised Return Annualised ReturnImprovement In Investment

Results

From To

1/05/1996 30/04/1997 19.64% 16.95% 2.69%

From To

1/05/1997 30/04/1998 17.14% 11.70% 5.45%

From To

1/05/1998 30/04/1999 15.86% 14.70% 1.15%

From To

1/05/1999 30/04/2000 19.13% 15.33% 3.80%

From To

1/05/2000 30/04/2001 3.53% 5.81% -2.28%

From To

1/05/2001 30/04/2002 18.20% 9.77% 8.43%

From To

1/05/2002 30/04/2003 13.09% 4.35% 8.74%

From To

1/05/2003 30/04/2004 -4.66% -6.24% 1.58%

From To

1/05/2004 30/04/2005 24.22% 19.41% 4.81%

From To

1/05/2005 30/04/2006 20.97% 20.45% 0.52%

From To

1/05/2006 30/04/2007 37.81% 37.69% 0.12%

From To

1/05/2007 30/04/2008 23.30% 23.10% 0.20%

From To

1/05/2008 30/04/2009 -6.04% -4.56% -1.48%

From To

1/05/2009 30/04/2010 -26.67% -30.36% 3.69%

From To

1/05/2010 30/04/2011 37.71% 34.17% 3.54%

From To

1/05/2011 30/04/2012 5.25% 5.44% -0.20%

From To

1/05/2012 30/04/2013 -3.91% -4.62% 0.71%

From To

1/05/2013 30/04/2014 19.40% 20.97% -1.57%

From To

1/05/2014 30/04/2015 9.05% 10.43% -1.38%

From To

1/05/2015 30/04/2016 8.97% 10.16% -1.18%

From To

1/05/2016 30/04/2017 -5.06% -3.65% -1.40%

From To

1/05/2017 30/04/2018 20.16% 16.65% 3.52%

From To

1/05/2018 30/04/2019 6.80% 6.44% 0.36%

From To

1/05/2019 30/04/2019 8.41% 10.23% -1.81%

From To

1/05/2019 30/04/2020 -12.10% -9.22% -2.88%

1.40%

Superior Results 16 9 Average Improvement



Returns shown are annual returns.

2) The Market Index Portfolio in this table is the All Ordinaries Accumulation Index ignoring any investment or trading costs.


The software is called "The Returns Program". FYG Planners Pty Ltd believe the data series to be accurate but do not accept any

responsibility for any inaccurate data calculated by the Returns Program.


Future investment returns may bear no resemblance to past returns as financial market returns may be very different as may be the

rate of inflation in future.



Qualifying Comments


Australian Equities versus Market

Time Period Measured

April 2020

P. 3

Annualised

Return

Standard

Deviation

Annualised

Return

Standard

Deviation

Improvement In

Investment

Results

Standard

Deviation

Difference

25 years

from 1/05/1995 9.19% 17.01% 6.83% 16.76% 2.36% -0.25%

to 30/04/2020

20 years

from 1/05/2000 6.67% 17.05% 3.44% 16.25% 3.23% -0.80%

to 30/04/2020

15 years

from 1/05/2005 8.41% 16.72% 6.75% 15.19% 1.66% -1.54%

to 30/04/2020

10 years

from 1/05/2010 10.64% 11.37% 9.63% 9.75% 1.01% -1.62%

to 30/04/2020

5 years

from 1/05/2015 6.02% 10.29% 6.25% 8.83% -0.24% -1.46%

to 30/04/2020

4 years

from 1/05/2016 7.91% 10.82% 8.73% 8.07% -0.83% -2.75%

to 30/04/2020

3 years

from 1/05/2017 4.38% 9.82% 6.13% 7.44% -1.75% -2.39%

to 30/04/2020

2 years

from 1/05/2018 0.59% 10.20% 3.85% 8.94% -3.26% -1.26%

to 30/04/2020

1 years

from 1/05/2019 -6.37% N/A -2.28% N/A -4.09% N/A

to 30/04/2020

1) The Asset Class portfolio includes holdings of 50% Large Cap stocks, 30% Value stocks and 20% Small Cap stocks using our preferred

investment manager. Returns shown are before investment management, administration or advice fees.

2) The Market Index Portfolio in this table is 50% MSCI World Index & 50% MSCI World Index (hedged to AUD) ignoring any investment,

trading costs or currency hedging.

3) Standard deviations shown indicates the Asset Class Portfolio to be less variable where the "Standard Deviation Difference" column is a

positive number noted in blue. If the figure is Red then the portfolio is more variable.

4) The investment return data series has been calculated using a software program provided by Dimensional Fund Advisers (Aust) Ltd. The

software is called "The Returns Program". FYG Planners Pty Ltd believe the data series to be accurate but do not accept

any responsibility for any inaccurate data calculated by the Returns Program.


Future investment returns may bear no resemblance to past returns as financial market returns may be very different as may be the rate of

inflation in future.

6) Investment returns for the Asset Class portfolio take into account past structural changes made by FYG Planners Pty Ltd to our standard

model portfolios.


8) The Market Index portfolio was revised to include hedging in November 2019

April 2020


International Equities versus Market

Time Period

Measured

Qualifying Comments


P. 4

Asset Class Portfolio Market Index Result Difference

Annualised Return Annualised ReturnImprovement In Investment

Results

From To

1/05/1995 30/04/1996 20.72% 18.69% 2.03%

From To

1/05/1996 30/04/1997 11.35% 14.24% -2.89%

From To

1/05/1997 30/04/1998 43.94% 42.05% 1.89%

From To

1/05/1998 30/04/1999 7.94% 13.89% -5.95%

From To

1/05/1999 30/04/2000 18.51% 20.80% -2.30%

From To

1/05/2000 30/04/2001 4.93% -9.18% 14.10%

From To

1/05/2001 30/04/2002 -7.51% -16.33% 8.81%

From To

1/05/2002 30/04/2003 -21.12% -23.10% 1.97%

From To

1/05/2003 30/04/2004 29.61% 19.94% 9.67%

From To

1/05/2004 30/04/2005 9.25% 5.34% 3.91%

From To

1/05/2005 30/04/2006 33.75% 27.44% 6.32%

From To

1/05/2006 30/04/2007 11.99% 10.30% 1.69%

From To

1/05/2007 30/04/2008 -11.71% -10.65% -1.06%

From To

1/05/2008 30/04/2009 -27.46% -29.95% 2.49%

From To

1/05/2009 30/04/2010 27.27% 20.74% 6.54%

From To

1/05/2010 30/04/2011 9.84% 6.21% 3.63%

From To

1/05/2011 30/04/2012 0.12% -0.68% 0.80%

From To

1/05/2012 30/04/2013 19.01% 18.14% 0.87%

From To

1/05/2013 30/04/2014 29.84% 23.50% 6.33%

From To

1/05/2014 30/04/2015 20.79% 20.31% 0.48%

From To

1/05/2015 30/04/2016 -1.22% -3.11% 1.90%

From To

1/05/2016 30/04/2017 19.21% 16.93% 2.28%

From To

1/05/2017 30/04/2018 12.40% 10.83% 1.57%

From To

1/05/2018 30/04/2019 8.06% 10.36% -2.30%

From To

1/05/2019 30/04/2020 -6.37% -2.28% -4.09%

2.35%

Superior Results 19 6 Average Improvement



Returns shown are annual returns.

2) The Market Index Portfolio in this table is 50% MSCI World Index & 50% MSCI World Index (hedged to AUD) ignoring any investment,

trading costs or currency hedging.


software is called "The Returns Program". FYG Planners Pty Ltd believe the data series to be accurate but do not accept any



Future investment returns may bear no resemblance to past returns as financial market returns may be very different as may be the rate

of inflation in future.



6) The Market Index portfolio was revised to include hedging in November 2019

Qualifying Comments

International Equities versus Market

Time Period Measured


April 2020

P. 5

Annualised ReturnStandard

DeviationAnnualised Return

Standard

Deviation

Improvement In

Investment

Results

Standard

Deviation

Difference

25 years

from 1/05/1995 8.01% 7.15% 7.36% 7.06% 0.65% -0.09%

to 30/04/2020

20 years

from 1/05/2000 7.04% 7.45% 6.19% 7.15% 0.85% -0.30%

to 30/04/2020

15 years

from 1/05/2005 6.50% 8.13% 6.18% 7.91% 0.32% -0.22%

to 30/04/2020

10 years

from 1/05/2010 6.21% 4.89% 6.59% 4.76% -0.38% -0.13%

to 30/04/2020

5 years

from 1/05/2015 3.85% 5.06% 4.40% 4.62% -0.55% -0.44%

to 30/04/2020

4 years

from 1/05/2016 4.46% 5.61% 5.12% 5.00% -0.66% -0.61%

to 30/04/2020

3 years

from 1/05/2017 2.82% 5.53% 3.98% 5.45% -1.16% -0.09%

to 30/04/2020

2 years

from 1/05/2018 1.92% 7.54% 3.69% 7.68% -1.77% 0.14%

to 30/04/2020

1 years

from 1/05/2019 -3.27% N/A -1.60% N/A -1.67% N/A

to 30/04/2020

1) The Asset Class Portfolio returns represent the historical results of the FYG Planners Pty Ltd 50/50 model portfolio over the relevant period

and include any structural changes introduced by the FYG Investment Committee.

2) The Market Index Portfolio includes the results of: 10% UBS Warburg 90 Day Bank Bill Index

40% UBS Warburg Australian Bond Composite Index

9% S&P/ASX Property Trusts Accumulation Index

25% S&P ASX 500 Accumulation Index

8% MSCI World Acc Index Unhedged & 8% MSCI Hedged


positive number noted in Blue. If the figure is Red then the portfolio is more variable.


software is called "The Returns Program". FYG Planners Pty Ltd believe the data series to be accurate but do not accept any responsibility

for any inaccurate data calculated by the Returns Program.

5) The investment returns shown above are historical and in some cases have been simulated from the most appropriate market data. Future

investment returns may bear no resemblance to past returns as financial market returns may be very different as may be the rate of




Qualifying Comments

FYG 50/50 Portfolio versus Market

Time Period

Measured


April 2020

P. 6



Standard

Deviation

Improvement In

Investment

Results

Standard

Deviation

Difference

25 years

from 1/05/1995 8.32% 8.64% 7.46% 8.47% 0.85% -0.17%

to 30/04/2020

20 years

from 1/05/2000 7.23% 9.14% 6.16% 8.78% 1.07% -0.35%

to 30/04/2020

15 years

from 1/05/2005 6.68% 9.97% 6.24% 9.67% 0.44% -0.30%

to 30/04/2020

10 years

from 1/05/2010 6.51% 5.89% 6.77% 5.61% -0.26% -0.28%

to 30/04/2020

5 years

from 1/05/2015 3.93% 6.24% 4.43% 5.55% -0.51% -0.69%

to 30/04/2020

4 years

from 1/05/2016 4.69% 6.91% 5.28% 6.01% -0.59% -0.90%

to 30/04/2020

3 years

from 1/05/2017 2.62% 6.72% 3.77% 6.36% -1.16% -0.35%

to 30/04/2020

2 years

from 1/05/2018 1.28% 8.96% 3.11% 8.87% -1.82% -0.09%

to 30/04/2020

1 years

from 1/05/2019 -4.86% N/A -2.98% N/A -1.88% N/A

to 30/04/2020







10% MSCI World Acc Index Unhedged & 10% MSCI Hegded











Qualifying Comments


Time Period

Measured


April 2020

P. 7



Standard

Deviation

Improvement In

Investment

Results

Standard

Deviation

Difference

25 years

from 1/05/1995 8.70% 10.13% 7.65% 9.90% 1.05% -0.24%

to 30/04/2020

20 years

from 1/05/2000 7.46% 10.78% 6.17% 10.36% 1.29% -0.42%

to 30/04/2020

15 years

from 1/05/2005 6.94% 11.73% 6.41% 11.34% 0.54% -0.39%

to 30/04/2020

10 years

from 1/05/2010 6.91% 6.90% 7.10% 6.48% -0.19% -0.42%

to 30/04/2020

5 years

from 1/05/2015 4.09% 7.39% 4.61% 6.47% -0.52% -0.93%

to 30/04/2020

4 years

from 1/05/2016 5.05% 8.14% 5.66% 6.95% -0.61% -1.20%

to 30/04/2020

3 years

from 1/05/2017 2.55% 7.79% 3.82% 7.20% -1.27% -0.59%

to 30/04/2020

2 years

from 1/05/2018 0.80% 10.21% 2.84% 9.93% -2.04% -0.27%

to 30/04/2020

1 years

from 1/05/2019 -6.16% N/A -3.94% N/A -2.21% N/A

to 30/04/2020







12.5% MSCI World Acc Index Unhedged & 12.5% MSCI Hedged












Time Period

Measured

Qualifying Comments


April 2020

P. 8



Standard

Deviation

Improvement In

Investment

Results

Standard

Deviation

Difference

25 years

from 1/05/1995 9.00% 11.63% 7.76% 11.28% 1.24% -0.35%

to 30/04/2020

20 years

from 1/05/2000 7.71% 12.62% 6.16% 11.97% 1.56% -0.65%

to 30/04/2020

15 years

from 1/05/2005 7.08% 13.61% 6.54% 12.98% 0.54% -0.63%

to 30/04/2020

10 years

from 1/05/2010 6.58% 8.05% 7.11% 7.37% -0.52% -0.68%

to 30/04/2020

5 years

from 1/05/2015 3.80% 9.06% 4.59% 7.52% -0.79% -1.54%

to 30/04/2020

4 years

from 1/05/2016 5.15% 9.83% 5.96% 7.92% -0.80% -1.91%

to 30/04/2020

3 years

from 1/05/2017 1.98% 9.00% 3.67% 7.87% -1.69% -1.13%

to 30/04/2020

2 years

from 1/05/2018 -0.54% 11.18% 2.28% 10.65% -2.82% -0.53%

to 30/04/2020

1 years

from 1/05/2019 -8.14% N/A -4.97% N/A -3.16% N/A

to 30/04/2020







14% MSCI World Acc Index Unhedged & 14% MSCI Hedged











Qualifying Comments


Time Period

Measured


April 2020

P. 9



Standard

Deviation

Improvement In

Investment

Results

Standard

Deviation

Difference

25 years

from 1/05/1995 9.29% 13.23% 7.78% 12.80% 1.52% -0.43%

to 30/04/2020

20 years

from 1/05/2000 7.83% 14.37% 5.96% 13.62% 1.87% -0.75%

to 30/04/2020

15 years

from 1/05/2005 7.30% 15.41% 6.62% 14.61% 0.68% -0.80%

to 30/04/2020

10 years

from 1/05/2010 6.89% 9.21% 7.28% 8.30% -0.39% -0.90%

to 30/04/2020

5 years

from 1/05/2015 3.91% 10.45% 4.67% 8.51% -0.75% -1.94%

to 30/04/2020

4 years

from 1/05/2016 5.58% 11.23% 6.32% 8.84% -0.74% -2.38%

to 30/04/2020

3 years

from 1/05/2017 1.91% 11.23% 3.64% 8.53% -1.73% -2.70%

to 30/04/2020

2 years

from 1/05/2018 -1.16% 12.25% 1.85% 11.30% -3.01% -0.95%

to 30/04/2020

1 years

from 1/05/2019 -9.45% N/A -5.83% N/A -3.62% N/A

to 30/04/2020







17.5% MSCI World Acc Index Unhedged & 17.5% MSCI Hedged












Time Period

Measured

Qualifying Comments


April 2020

p. 10

Asset Class PortfolioBT Wholesale Balanced

Returns

CFS Wholesale

Diversified

MLC Wholesale

Horizon 4 Balanced

OnePath Wholesale

Managed Growth

7 years

from 1/05/2013 6.39% 6.51% 7.78% 7.17% 6.58%

to 30/04/2020

6 years

from 1/05/2014 5.47% 5.98% 6.84% 6.34% 5.92%

to 30/04/2020

5 years

from 1/05/2015 4.09% 4.08% 5.44% 4.82% 4.35%

to 30/04/2020

4 years

from 1/05/2016 5.05% 5.28% 6.80% 6.16% 5.76%

to 30/04/2020

3 years

from 1/05/2017 2.55% 3.80% 5.45% 3.95% 3.78%

to 30/04/2020

2 years

from 1/05/2018 0.80% 1.80% 4.56% 2.35% 2.15%

to 30/04/2020

1 years

from 1/05/2019 -6.16% -0.68% -0.78% -2.87% -2.89%

to 30/04/2020

1) The Asset Class Portfolio returns represent the historical results of the FYG Planners Pty Ltd 30/70 model portfolio over the relevant

period and include any structural changes applied by the FYG Investment Committee.

2) The performance of the wholesale funds offered by each institution have been grossed up by their management expense rate in order to

compare pre-fee returns in all data.

3) Wholesale product performance data was provided by Morningstar Research.Whilst the data is believed to be reliable, FYG Planners

Pty Ltd takes no responsibility for inaccuracies in the Morningstar data.


The software is called "The Returns Program". FYG Planners Pty Ltd believe the data series to be accurate but do not accept any



investment returns may bear no resemblance to past returns as financial market returns may be very different as may be the rate of inflation

in future.

April 2020


Qualifying Comments

FYG 30/70 Portfolio versus A Selection of Actively Managed Funds

Time Period

Measured

Annualised Portfolio Returns

P. 11

Name of Fund Date of Inception

Size of Fund ($m)

Net Assets APIR Code

1/12/1989 $33.4 BTA0806AU

18/07/1995 $268.9 FSF0008AU

6/09/2000 $494.0 DFA0103AU

8/06/1999 $490.1 DFA0100AU

2/10/2000 $237.4 DFA0104AU

8/06/1999 $597.6 DFA0101AU

1/09/2001 $2,387.0 DFA0108AU

18/08/2000 $150.8 DFA0105AU

18/08/2000 $412.9 DFA0106AU

26/08/1999 $443.5 DFA0102AU

1/01/1998 $1,756.5 MLC0260AU

1/01/1998 $479.9 MLC0265AU

31/03/1998 $24.8 MMF0115AU

Data Sources

Information for this table was sourced from Lonsec.

Data dated: 30/4/2020

Supplementary Fund Data

BT Wholesale Balanced Returns Fund

Colonial FS Wsale - Wsale Diversified

Fund

Dimensional - Diversified Fixed Interest

Trust

Dimensional - Global Large Company

Trust

Dimensional - Global Small Company

Trust

Dimensional - Global Value Trust

MLC Inv Trust Balanced (Multi -

Manager) Fund

MLC Inv Trust Growth (Multi - Manager)

Fund

OnePath WS - Managed Growth

Dimensional - Australian Short Term

Fixed Interest Trust

Dimensional - Australian Large Company

Trust

Dimensional - Australian Small Company

Trust

Dimensional - Australian Value Trust

P.13

fyg evidence based model portfolios€¦ · index portfolio management involves, generally an...

Documents