Financial Standard reported that the bank has argued against chasing past returns or selling funds that have underperformed in favor of those that recently outperformed.
The bank in a recent note to clients said: "A US study undertaken in July 2012 found the average investor returned 3.5% per annum over a 20-year period, whilst an investment in the S&P500 index returned 7.1% per annum."
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According to NAB, private clients often take the decision to redeem a recent underperformer too lightly without considering whether the manager’s style is simply out of favor. It added that, just like stocks, a fall in the value of a managed fund usually signals a buying opportunity.
"Not everything goes to plan 100% of the time for any investor, including professional fund managers. So we need to know whether the weakness was a result of the manager’s style, or related to poor stock selection, disruptions in the business or a manager moving outside of its risk guidelines," explains the note.
"If it was a result of the latter issues then the fund holding should be reviewed. If on the other hand, it was a result of external macro issues affecting the specific style, there may be scope to maintain the fund holding."
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