Vanguard_says_beware_of_lastet_fashion.pdf (PDF - 33KB)

Melbourne, 14 May 2007 - Investors and advisers who attempted to pick the next hot investment theme were likely to be disappointed, according to research commissioned by Vanguard Investments Australia (Vanguard).

The Morningstar research looked at the performance of the top five Australian share funds over a 10-year period from 30 June 1996 to 30 June 2006, with no one theme or investment style dominating the league tables consistently.

Robin Bowerman, Head of Retail at Vanguard says, "Investors and advisers over the years have often fallen into the trap of investing in a particular style whether that be growth or value, or the latest sector. But as the research has shown, last year's rooster regularly turns into tomorrow's feather duster."

For example in the year 2000, the top five share funds posted an average return of 35 per cent. The following year the same five funds delivered an average return of 9.2 per cent.

According to Morningstar, the top fund in 2000 achieved a return of 47.8 per cent for that year but the next year underperformed the index and produced a return of only 7.6 per cent and then continued to under perform the index through to 2006, making it the bottom-performing fund. Thirty one per cent of funds in the top five in 2000 failed to match the index the following year - some by a large margin.

The study also highlighted another serious issue for investors - the simple issue of a fund's long-term survival. Investors, particularly those saving for retirement, have long investment time horizons - but not even good performance or investor loyalty can guarantee a fund's longevity.

Mr Bowerman said, "Almost 30 per cent of the funds analysed in the Morningstar study do not exist today while 18.8 per cent of the funds that appeared among the top performers in any year were among those terminated." "Investors cannot control the market, but they can certainly control costs - try to keep them as low as possible so positive performance is not wiped out."