Fund A issued 1 billion shares at 1 yuan per share on January 1, 2020, and rose to 10 times a year later, with a net value of 10 yuan. At this time, 9 billion shares were subscribed, with a total share of 10 billion shares and a scale of 100 billion. After another year, the net worth came to 5 yuan. How is the annualized rate of return of the fund calculated? Is it 4 times for 2 years?
Time-weighted rate of return:
| Time period | Net asset value at the beginning of the period | Net asset value at the end of the period | Range yield |
| January 1, 2020 ~ December 31, 2020 | 1 billion | 10 billion | (100-10)/10=900% |
| January 1, 2021 ~ December 31, 2022 | 100+900=1000（亿） | 50 billion | (500-1000)/1000=-50% |
The time-weighted rate of return is cumulative over the entire two-year period:
(1+900%)*(1-50%)-1=400%
It is indeed four times in two years (excluding the principal) and there is nothing wrong with it. In this way, the impact of the fund's subscription and redemption on the net value of the fund is completely eliminated, and the impact on the performance evaluation of the fund manager is eliminated.
Market Cap Weighted Yield: The market capitalization weighted rate of return reflects the level of return of investors, while the time weighted rate of return reflects the performance of fund managers, as investors should pay attention to market capitalization weighted rate of return. The time-weighted rate of return is likely to be the return of the fund manager on the scale of funds managed by the fund manager compared to the size of the child, and if the factor of fund subscription and redemption is taken into account, the results will be different. Assuming that there is only one holder of Fund A, let's calculate the return rate of this person in the past two years:
The formula for the market capitalization-weighted rate of return is:
10(1+i)^2+900(1+i)=500 solution equations, i=-44.78%
A0 is the initial principal of 1 billion at the beginning of the year;
I is the market capitalization-weighted rate of return (annual rate of return);
Ct is the T moment, and the principal invested by the investor is 90 billion;
t is the total length of time from the beginning of the year to the time t, for example, Ct is the principal invested at the end of June, then t=0.5, and Ct is the principal invested at the end of September, then t=9/12=0.75
A1 is the asset scale of 50 billion at the end of the year.
(For example, if a fund has a fund size of 10 million at the beginning of a certain year, and investors subscribe to a fund of 10 million at the end of April, and redeem 2 million and 5 million funds at the end of June and August respectively, and the balance of the fund is 15 million at the end of the year, then the market capitalization weighted rate of return of the fund is:
1000*（1+i）+1000（1+i）^(1-4/12)-200*(1+i)^(1-6/12)-500*(1+i)^(1-8/12)=1500
Solving the equation yields an i value of approximately 14.33%. ）
The return on the fund investor is not equal to the fund manager's return. Unless you hold the fund from the time you subscribe to it, rather than getting on the bus halfway. That's why John Berg is calling on fund companies to publish mark-capitalization-weighted yields. The growth of the net value of the fund and the making of the people cannot be equated. Only the rate of return on the money invested at the time of subscription will be equal to the growth rate of return on the net value of the fund, but this is a paradox in itself: the newly released fund has no historical performance, so why should you buy this new fund? Fund managers who have crossed bulls and bears in the past and performed well make money, not the same as those who invest in the fund make money.
Taleb said in "Asymmetric Risk" that fund managers will ignore tail risk, and risk exposure will always exist in long-term market trading, and after enough trading time, the risk of liquidation will increase and lose ergodability. To prevent such incidents from happening, one cannot bet on a fund. However, the maximum limit of funds that a person can track is about 10 to 15, and according to the low correlation of different fund managers, they can be bought in a diversified manner.
If the active fund manager is inconsistent with his words and deeds, and his style drifts, then you can't diversify the risk by diversifying the investment in 10 funds, because you can't avoid the holding of these ten funds, so that the eggs are not put in one basket, but they are all on the same truck, and once the market style changes, the eggs will be broken.
The underlying assets of active funds are ambiguous, which leads to the ambiguity of timing and position splitting. Active fund investors in addition to redemption, split, there is almost no good way to control the drawdown, redemption is faced with the redemption fee and when to subscribe again of the second time of the problem, and the split position requires each position low correlation or even negative correlation, fund investors can only logically judge the correlation between the positions. You have to agree with the investment logic of the fund manager, there is no "bottom" when the fund falls, you don't know where the "bottom" is, you can't have a bottom in your heart, and it is not easy to insist on holding the fund for a long time.
If the active fund manager has the energy to write a book, and you agree with the ideas in his book, then you can hold the fund and bear the drawdown, but the fund manager does not have the time and energy to write a book, and even because he has to do research, he should not have the time and energy to participate in various publicity activities, and you can only know a few words about his investment philosophy. Fund managers certainly don't reveal the core secrets of their profitability in public. Then he can calmly face the drawdown according to his own investment logic, and if you don't understand his investment logic, he is not so calm in the face of the drawdown, and he relies on faith to recharge. In the face of drawdown, if there is no problem with the buying logic and the external conditions have not changed, they will think that there is a margin of safety, and they can just carry it to death, and they can make up their positions if they have extra money.
Technical analysts may have stopped their losses at the beginning of the retracement. Investors who buy active funds do not know exactly what assets their positions are composed of, and it is very easy to cut off the market when they are withdrawn, because they have to face two problems: whether they should continue to believe in the fund manager, and what if the fund manager's investment style changes and they don't know? If their holding logic cannot be described clearly, then it is very difficult to insist on holding a certain fund, and the market fluctuates all the time, and short-term drawdowns are inevitable.
A seemingly feasible solution is to buy a bunch of funds that don't have a trading style or different types of assets, and minimize their correlation, so that the drawdown will be reduced in theory, but how to choose a fund manager with a low correlation is still a problem, after all, the fund manager will have the risk of inconsistency between words and deeds. This creates the paradox of active funds: if you hold the fund with the drawdown, it means that you recognize the fund manager's investment system, or recognize the position, which means that you also understand this investment system, so why do you have to pay him a management fee, just buy individual stocks directly, and you can also make new ones yourself.
The natural motivation of public fund managers is to "make the fund bigger and earn more management fees", rather than "make more money for fund holders", and some fund managers prefer those stocks with high volatility to win a short-term explosive income (resulting in the overall overvaluation of high-volatility stocks) and let people subscribe more (this operation may also explain to a certain extent why stocks with low volatility have higher long-term returns than stocks with high volatility). If you agree with the investment logic of online big V, you can not have a trace of subjective copying homework, (poor students copy students' homework, will they change the answers by themselves?Of course not.) It also saves on the management fee of the active fund.
If you hold the fund at the time of subscription, then you can get the historical annualized return displayed by the fund. Unexpectedly, active funds also have to choose the right time. If the style of the active fund does not drift, it is fine, if the style drifts, then even if there is an extra layer of noise, it is a big black box nested in a small black box, and the logic of timing can only start from the style of the fund, for example, you think that the semiconductor tuyere is coming, but the specific investment target you think is not as professional as the fund manager, then choose the time to buy the semiconductor theme of the active fund. Of course, from the perspective of asset allocation, you can also mix large and small caps, grow and value, momentum and reversal styles, and buy fund managers with different valuation systems and different operating ideas, which may form a trading system with low correlation.
The expansion of many funds is too large, which is not conducive to the operation of fund managers, which is the reason. When the ship gets bigger, and even the slightest disturbance can set off waves in the market, then your operation itself will send a signal to the market that your buying decision will most likely not be bought at the lowest point, because when you open a position in batches, the stock price has been raised very high by your own actions.
1. Once a good fund is recognized by everyone, the purchase scale will rise, and scale is the enemy of the rate of return. 2. When a good fund manager is recognized, he will immediately manage more funds, and the focus of a single fund will decrease. 3. A good fund manager is likely to jump ship to private equity because of the maximization of personal interests, and the public offering product is unfinished. 4. Most people attach too much importance to short- and medium-term returns, and the market is constantly changing, and many fund managers have high short- and medium-term returns, which are likely to be due to luck or style fit. 5. Poor sense of moral restraint. Under the pressure of KPIs, many fund managers choose to bet on popular stocks and trend stocks, only caring about short- and medium-term assessments, and wanting to excel. They only care about their own interests and do not care about the interests of the people.
When a star product is launched, it is actually the high point of the market, but subscribing at this time will not affect the performance of the fund manager, because the calculation method of their performance is the time-weighted rate of return. 6. Since most funds can only be long, no matter how big the market risk is, they will be optimistic about the market for various reasons, and they will only care about the management fee, and will not care about how much money the customer makes. 7. The net value wear and tear caused by management fees is higher than that of index funds, and a large amount of expenses will be incurred under the effect of long-term compound interest, and private equity funds are even more effective in this regard; 8. Active funds need to face the redemption of investors and have requirements for liquidity. Active funds can not be full, long-term position restrictions will have a certain negative impact on the ability of fund managers to choose the right time, in the market is bad due to the 80% stock position limit, can not do short positions to avoid the fall, and when the market is good, can not do full attack.
The internal holding ratio may be a more reliable fund screening indicator, because it is easier for internal employees to judge whether their own products are strong or not.
John Doerr in the primary market has access to company founders, and Warren Buffett in the secondary market has access to company executives to make their investment decisions. Fund managers disclose even less data and information than listed companies, do you have the opportunity to change glasses with him, so how do you build trust with his investment system?
A fund with good performance may be a survivorship bias, and those funds that have performed poorly have been closed and liquidated. It's the equivalent of having tall and short people in the room, so how do you raise the average height of the people in the room? Do you inject them with growth hormone? No, you just need to kick the short people out of the room.