Newgrange Fund - BoI.Anyone invested/query?

[mercman]

Has anybody invested in this fund run by Bank of Ireland and if so are there any queries regarding the pathetic performance or other questions ???

 

[MOB]

Re: Newgrange Fund - BoI.Anyone invested/query??

My understanding is that this fund is aimed at HNW investors and is most definitely not 'widow and orphen' territory. I have some clients who put money into it. They don't seem too unhappy, at least not those who spoke about it.

How bad is it? And what are you comparing it to?

 

[camlin90]

Article about the fund published in September 2007 :

[broken link removed]

Quinn said he believed that most of the bad news in the market was ‘‘out there’’ and that the equity market ‘‘presents a buying opportunity’’.

Quinn said the Irish market represented ‘‘great value’’ at current levels, even if it was unpredictable in the short term.

The ISEQ has crashed by 48% since the director of BOI Private Banking looked into his crystal ball.

 

[mercman]

For those interested apparently a number of HNW investors have brought the matters to the legal eagles to assemble a case and proceed.

 

[Marc]

Nearly forty years of academic research has shown that traditional managers are unable to outperform the markets by anything more than that which we expect by chance.

"The idea that any single individual without extra information or extra market power can beat the market is extraordinarily unlikely. Yet the market is full of people who think they can do it and full of other people who believe them.....Why do people believe they can do the impossible
And why do other people believe them?"

Daniel H Kahnemann, 2002 Nobel Laureate in Economics.

 

[mercman]

Marc, your post is noted. However in this situation it is not the case. All Investment situations are down to timing and reading the situation.

 

[Marc]

[FONT=&quot]Time to have another look at the Newgrange Fund from Bank of Ireland.

My original post on this subject simply related to the basic fact that investors shouldn't pay a fund manager to try and guess which stocks might outperform the market since there is no evidence in the academic literature that anyone can consistently outperform the market after deducting their fees and expenses.[/FONT]

[FONT=&quot]The annual management charge for the Newgrange Fund is 1.5%pa plus a performance fee of 20% for growth above 7%pa.[/FONT]
[FONT=&quot]
This is what Nobel Laureate Bill Sharpe called “the arithmetic of active management”[/FONT]
[FONT=&quot]
If "active" and "passive" management styles are defined in sensible ways, it must be the case that :

(1) Before costs, the return on the average actively managed euro will equal the return on the average passively managed euro and
(2) After costs, the return on the average actively managed euro will be less than the return on the average passively managed euro.

These assertions will hold for any time period. Moreover, they depend only on the laws of addition, subtraction, multiplication and division. Nothing else is required.[/FONT]
[FONT=&quot]The implications of the “arithmetic of active management” are that the difference in performance between the average passive portfolio and that of the average active fund manager just reflects the differences in fees and expenses. Active management is ALWAYS going to lose on average just on the basis of fees and expenses.[/FONT]
[FONT=&quot]
So, taking the Net Asset Value figures published by BOI on their website (www.biam,ie) we ran some analytics to see how well this fund has done compared to a simple benchmark of the MSCI World Index.[/FONT]
[FONT=&quot]
Analysis of the period November 2006 to July 2009[/FONT]
[FONT=&quot]
Newgrange Fund Annualised return -14.40%pa Volatility (Standard Deviation) 19.20[/FONT]
[FONT=&quot]MSCI World Index (gross div) -11.61%pa Volatility 17.90[/FONT]
[FONT=&quot]The correlation between the Newgrange Fund and MSCI World Index is 0.918[/FONT]
[FONT=&quot]

The message for investors in this fund is clear that a low cost, highly diversified index fund should, all things being equal, consistently outperform this fund simply on the basis of the adding up constraint associated with higher fees.

I am perfectly willing to accept that some fund managers will beat the market purely by chance, however, when we study a distribution of fund manager results, we see fewer managers beating the market than we would expect by chance.

[broken link removed]
[broken link removed]
[/FONT]

 

[Rory Gillen]

On the topic of fund managers and out-performance, I believe the research on this topic shows that over a 10-year period 80-85% of (long-only) funds will not achieve the market return. Long-only funds are in the market all the time i.e. they do not have the flexibility to enter and exit markets (that choice is left to the investor/client). I am not sure what type of fund Newgrange is (long-only or hedge fund). There is no research that I know off that states that no fund manager can do better than the averages.

Shorter time periods are not that relevant as even an exceptional fund manager can under-perform his/her relevant benchmark index at times. Anthony Bolton of Fidelity in the UK achieved great acclaim for his 30-year record with the Fidelity Special Values Fund. David Dreman in the US has an even longer record and he is also the author of 'contrarian Invetment Strategies' for anyone who has an interest in reading further on the subject.

My own experience leads me to believe that there are two main reasons why traditional active fund managers (of long-only funds) struggle against the index
(i) their costs are higher
(ii) many lack consistency in their approach

In summary, the evidence is irrefutable that the majority of long-only funds do not deliver the market return over time. The explosive growth in exchange traded funds, which passively track an index, is probably a recognition of this fact.

But that is quite different than saying that all active fund managers should be avoided. Eagle Star (Zurich) stands out in the Irish market and there are several Irish-based 'alternative' strategy funds that have delivered excellent returns over the last few years - before I left Merrion in April last, I was aware that its High Alpha, Discovery and Fintra funds had all done exceptionally well in the past few years despite dreadful market conditions. These funds can go short as well as long - so they can't necessarily be lumped in with long-only funds (only long-only funds can rightly be compared to exchange traded funds).

Hope that adds some clarity to the debate.

Rory

 

[Dogsbody]

Rory, Marc ,I apoloogise if this derails the thread somewhat but I would be interested in your views on Absolute Return Funds such as Standard Lifes Gars fund which have recently been introduced to the Irish market.

 

[Marc]

[FONT=&quot]Most active fund managers are hired to add value through stock selection or market timing – yet there is no evidence that any form of stock picking or market timing adds any value to a diversified portfolio.[/FONT]

[FONT=&quot]This message is so hard for some people to accept that the author of a Random Walk Down Wall Street, Burton Malkiel said that “it is like telling a 6 year old there is no Santa Clause”.[/FONT]

[FONT=&quot]The key to the whole process of picking active managers is for an investor to attempt to identify future “winning” managers –it is a relatively easy task to identify those managers who have performed well in the past – but the real challenge for an investor is to identify those managers who will win in the future.[/FONT]

[FONT=&quot]Identifying manager skill from luck is statistically extremely difficult. Money manager investment styles deliver negative performance statistically often. Those that consistently deliver positive returns are fewer, and can maintain it only for a short period of time.[/FONT]

[FONT=&quot]This is one of the most recent studies into Luck vs Skill in the Cross section of Mutual fund Alpha estimates. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1356021

[/FONT]

[FONT=&quot]Investment consultants use statistical measures such as the information ratio to identify manager outperformance of a benchmark, but the information ratio is an uncertain indictor of a manager’s success or failure. Some consultants assume that information ratios are stable over time so that a high IR in one period reliably predicts a high IR in the future. An investigation into a large sample of mutual funds did not support this assumption, if anything, IR in one period were negatively related to IRs in the following period.[/FONT]

[FONT=&quot]Rory names a few managers with track records which appear to quarrel with these arguments. [/FONT]

[FONT=&quot]I would argue that for any investor to profit from any manager’s “skill”, they would need to identify this skill years before the track record is established….i.e. before it becomes obvious.[/FONT]

[FONT=&quot]But it takes 20 or 30 years of data to statistically prove that a manager is exhibiting skill rather than luck. This is longer than most fund managers are in business and therefore we cannot say for certain if an individual’s guesses are skillful or lucky.[/FONT]

[FONT=&quot]My best guess is that a manager who establishes a reputation for calling the market is mostly benefiting from luck and that from time to time we would expect to see the other side of the distribution (the bad luck)[/FONT]

[FONT=&quot]To illustrate this let’s have a look at some predictions made by successful money managers starting with David Dreman who in the January 2008 edition of Forbes magazine argued that investors should load up on stocks that had been unfairly punished by the declining market and he said that; “the safest plays are among the big banks” [/FONT]

[FONT=&quot]He recommended 7 banks and on average they declined 74% in 2008.[/FONT]

[FONT=&quot]Another prominent money manager in the US, Ken Fisher said in Forbes in January 1995 that stocks were going to surprise on the upside and “I am extremely bullish for the new year” he was absolutely right and the S&P 500 had the best year since 1958.[/FONT]

[FONT=&quot]Maybe he is one of the few people that can predict market turns.[/FONT]
[FONT=&quot]Would it therefore make sense to follow his predictions?[/FONT]

[FONT=&quot]In late 2007 he was telling us in Forbes that “this was a phoney credit crunch….a few months from now we will be wondering what the fuss was about”[/FONT]

[FONT=&quot]In early 2008 he admitted that his forecast was off the mark but insisted is was still going to be a good year for stocks although he did think that foreign stocks were going to do better than US stocks. As it turned out foreign stocks did worse than US stock.[/FONT]

[FONT=&quot]However, he selected one US stock in early Jan 2008 to participate in the US market – that one stock was American International Group (AIG) down 97% and the single worst performer in the S&P 500.[/FONT]

[FONT=&quot]This is such an egregious example of bad luck that perhaps the good predictions are just the other side of the distribution – the good luck. [/FONT]

[FONT=&quot]Finally the question has been raised what about absolute return funds such as the Standard Life GAR fund?[/FONT]

[FONT=&quot]I spoke to a consultant at Mercer’s about this the other day and he said that “Standard Life were so confident that they had invested their own pension in the fund.”[/FONT]

[FONT=&quot]I might be being naïve, but I would have thought that an absolute requirement of a fund manager would be to believe in the fund they were selling….[/FONT]
[FONT=&quot]I have a video on my website of author Dr Patrick Dixon NOT asking a group of equity fund managers if they would sell their funds to their own mothers as it is "too embarrasing and too sensitive".[/FONT]

The real point is the Hedge funds and Absolute return funds are not an “asset class” they are a compensation structure.

[FONT=&quot]Managers attempt to beat the market by exercising their “skill” and charge a higher fee as compensation for their “skill”. [/FONT]

[FONT=&quot]As investors, we all want to believe that we are investing in an “above average fund manager”. This reminds me of Estelle Morris UK Education Secretary saying that “she wanted ALL children to have an above average reading age” or both myself and Brian O’Driscoll have an average of 50 caps for Ireland etc.[/FONT]

Absolute return funds appeal to investors who want to make money when stocks go down.

I would argue that when we are investing in stocks, we are doing so over an investing lifetime 30 years+. Over those periods stocks go up, considerably and we can prove statistically that over very long timescales stocks outperform risk free assets. There is no need to short the market or avoid risk.

[FONT=&quot]If as an investor you are not willing to bear the risks associated with stocks, or by virtue of your investment timescale, you do not have an investment lifetime, then you need to make a risk return trade off. This means allocating more of your capital to risk free assets and less to stocks.[/FONT]

You don’t need to pay a fund manager a high fee to trying and guess when stocks are going down or which asset class might outperform from year to year.

 

[Rory Gillen]

Rory, Marc ,I apoloogise if this derails the thread somewhat but I would be interested in your views on Absolute Return Funds such as Standard Lifes Gars fund which have recently been introduced to the Irish market.

Dogsbody,

First off, how about a new name for yourself!!

On a serious note, however, Absolute Return Funds are hedge funds and their mission in life is to deliver a positive return in all market conditions. To achieve this, they can go long or short. In essence, they are using the stockmarket to do this but they are not willing to go down with the market.

I would disagree with the previous comment, as I believe Hedge funds are a genuine alternative asset class.

The corrollory, of course, is that when markets rise strongly, one should not expect a hedge fund to follow suit. Their aim in life is to produce better than cash deposit returns consistently - the difficulty for the investor is that some hedge funds do, some don't. A fund of hedge funds attempts to spread the manager risk within the hedge fund universe but again at added cost.

Over the long-haul, thouigh, if markets deliver 9-10% per annuum returns then hedge funds, loaded with costs, will never, in aggregate, achieve that. But they do offer an alternative and further diversification in the asset allocation process. I don't have the time to look at the Standard Life product you refer to but I hope the enclosed improves your understanding.

 

[Dogsbody]

Many thanks for the response guys.

 

[mercman]

Whilst Marc, Rory and Dogsbody are busy discussing the overall Fund Managers, the Newgrange Fund was sold to Investors on the fabulous sixth sense of Chris Reilly. Undoubtedly Chris Reilly did have a knowledge of the market and was able to pre see future problems coming down the road. However in the Newgrange fund massive losses have had to be taken due to investments in Irish Banks, UK housing Plcs etc. When the fund was launched, (06/07) it would not have taken rocket science to know at that time that the markets were about to embark on a correction. Then for the purpose of further insult, the Management Fees of approximately €13 million over a near three year period remains crazy. This is the charge to buy and hold mainly 20 stocks at any one time. The two main persons involved with Newgrange are Chris Reilly and Deirdre Kennedy. Whilst the Investors have been led to believe that Reilly is a main investor, any losses that he might incur will certainly be offset by his wages from the Newgrange Fund if the Charges are anything to go by.

Furthermore a series of Investors have tried to place questions to the Bank of Ireland at the recent update meetings. The questions in the main went unanswered and the points raised went unchallenged.

On the basis of this fund alone, one can actually see as to why BIAM had such a torrid time a number of years ago. From my part they got what they deserved then and for the future when the full facts of the actions of BIAM and their misgivings are reported, there will and should and hopefully will be a major exodus of investor funds both large and small from BIAM investors and their funds.

 

[z109]

If you want to get into general BIAM bashing, why has the PRSA cash fund returned 1.3% before 1% charge over the last year? It claims to be invested in leading deposit rates in the market.

A suspicious mind might consider that it is a low-cost slush fund for the parent company...

 

[mercman]

If you want to get into general BIAM bashing,

No, not simply trying to get into BIAM bashing but to highlight the failings and misgivings of the organisation. The manner they sold this product and other mis selling I have encountered and been unfortunately endured into.

Many people have learned a hard lesson concerning Banks. They simply cannot be trusted.

Perhaps the Mods might allow a thread on personal experiences of mis selling which others might use as a direction for future investment.

 

[mercman]

A note for those invested or know those invested in the Newgrange Fund, When originally started and promoted, the fund was promoted as part of the BIAM family of funds.

However in the past week, we have been told that it is to be no longer part of BIAM and that it will now fall under the umbrella of BoI. So we all weren't really sold a pup, looks like we were sold a mongrel.

 

[amadain]

Fund down 21.34% to date (in my calculations)

Presume we just sit & wait for Chris & the Fund to come back to a level where we will be happy to get out ?

 

[mercman]

There have been disastrous errors in this fund by the infamous Chris. Like taking a punt in AIB & BoI Shares which cost the fund and the Investors millions. Sometimes it isn't worth waiting for an Investment Manager to make the correct decisions and / or leaving it to others that might have a more modern and profitable investment philosophy.

 

[Marc]

All investors in this fund need to weigh up the following.

Any gains made within the existing fund while waiting for their original investment to return to par will be effectively tax free.

Whereas, if they pull out their investment and reinvest in another fund (even one with lower charges, and more diversification) then any increase in the value of their NEW investment will be subject to tax. It isn't possible to offset losses made on Newgrange against profits made on any other investment.

However, inequitable and unjust this might seem this is the harsh reality facing investors in this or indeed any fund showing a loss.

So, any investor deciding to cash in before they get back to the value of their original investment would need an alternative investment to return around 4%pa after costs more than staying where they are just to stand still.

Whilst this might be possible it certainly isn't going to be guaranteed.

I think that the real lesson here is that any investor must be fully committed to their investment strategy before they invest their money since finding out after the fact that your star fund manager has no investment skill leaves the investor stuck where they are due to the unfair tax system in Ireland.

You need to pick your fund group with great care as you might be signing up for a very long term relationship.

 

[mercman]

Marc, this is a very good post. However there are some real lessons to be learned from those of us that are waiting for Chris Reilly to wake up and smell the coffee. Despite all the freebies of booze and canapes, investors require to learn that Banks cannot be trusted. Furthermore, Banks need to do what they are supposed to do -- lend money and cease conning the public to part with their hard earned cash to place in Investments run by old boys who would be best placed out to grazing. These cretons publishing fancy colour brouchers would be better marketing for Paul Raymond's revue Bar in Soho, London. Investors that invested in this fund were sold a pup by BoI Private and many have been forced to take their losses to cover Bank borrowings. And to avoid further back lash the Bank swiftly relegated their MD to a minor role in case the hounds were men enough to chase him and make him sweat and sweat and sweat.