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Picking My Perfect Performance Measure

I’ve been doing a bit of a clearout recently and I came across a mass of old investment statements that I thought had long since departed this world. For a little while, I was tempted.

Until recently, I never really tracked my returns in a proper fashion. Therefore, I’m not exactly sure how I’ve performed over the long term.

My feeling is that I’ve done ok, but not delivered anything spectacular.

I have some very crude calculations that put me at 130% since the start of 2007 compared to 95% for the UK market. There’s a wide margin of error in that, though, as I’ve got information on how much new money I added but not when (and I think I might even be a little out on how much as well).

But with all this rediscovered documenation perhaps, I thought, I could piece something more accurate together?

Luckily, common sense soon prevailed.

It would be a mammoth task to sieve through all that paperwork. I suspect I would get halfway through and find I still didn’t have enough data to get an accurate figure.

Of course, in an ideal world, I’d be able to go online and download all the necessary information with a few clicks. Because I’ve moved brokers a few times and also suffered from a few broker takeovers and platform updates, I only have access to a few years of historical data online.

What’s my number?

While I’m happy investing actively, I’m conscious that it does take up a fair amount of my time and that most active investors underperform the market average.

Exactly how many of us underperform depends on which study you look. But most seem to suggest a figure of between 80% and 90% fail to cut the investment mustard over the long term.

I have a vague plan that should my active style of investing not measure up in terms of returns that I will switch in index trackers and give myself the gift of time.

I call it a vague plan because I haven’t completely decided over what timescale to measure, against what index, and what sort of cut-off number I have for making that decision. Apart from those little questions, though, I’m all good!

The right timescale

My investing style has evolved over the years, starting off in privatisation shares and investment trusts and then moving more into individual shares.

I even dabbled with the dark side of dodgy little oil and mining shares for a little while, before coming to my senses and moving back to (mostly) investment trusts.

As I’ve said before, it probably wasn’t until the start of 2014 that my investing style settled into the way it is today. That was when I shifted my portfolio much more into global stocks. Before I was very much concentrated on the UK market.

Looking at my portfolio around that time, I’ve come up with something I’m calling my crud coefficient. It’s the percentage of my portfolio that was invested in utter tat that I’d be embarrassed to admit to.

At the start of 2011, my crud coefficient was around 50%. That’s with the benefit of hindsight, of course, but it’s hard to look at that portfolio now without wincing.

A couple of years later, it was down to 27%. Partly that was because I’d sold some crud, but other crud I still held had fallen in value.

At the start of 2014, I was down to 17% and I closed that year at just 6%.

Admittedly, it was a few more years before I hit 0% and became crud-free, but the start of 2014 feels like the cleanest starting point.

Is matching the market good enough?

When I’m selecting what to invest in these days, I’m taking a more conservative approach than I used to.

My aim is to largely match the market with my largest holdings, but hopefully be less volatile in terms of returns. Then I’m adding a few side bets like UK small-caps and private equity to (hopefully) add a little bit more in the way of overall return.

Yes, I want to have my cake and eat it.

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That said, I’ve always enjoyed the process of investing. I think it’s fair to say that, even though my aim is to outperform the market, I’d be happy continuing with my active approach even if I just matched it.

To be honest, I’m not sure what level of underperformance would drive me to become fully passive.

I would probably need to underperform by a level that threatened my retirement plans. That’s impossible to put a precise number on although I suspect I would know it if I saw it.

Anything that drove me to rein in my spending, for example, would probably be a clear sign that a radical change is needed.

The UK vs. the world

The last piece of the puzzle is what to measure against.

In the past, I just used a UK total-return index. That was fine when I was mostly investing in UK stocks and UK-focused trusts.

But it doesn’t suit the way I invest today. And the performance of the UK and global markets have been very different in recent years.

Going back to the start of 2007 again, I reckon global markets are up around 195%. That’s on a total return basis and measured in sterling.

Interestingly, pretty much all the outperformance against the UK’s 95% over that same period seems to be due to currency movements. Back in early 2007, the pound was worth a little under $2 whereas it is just $1.26 today.

Good data is hard to find

If you’re a cheapskate like me, refusing to pay hard-earned money for data feeds, then getting a good, ongoing source of global index figures can actually be quite difficult.

FTSE provides figures in various currencies and on a total return basis, but there is no historical record. MSCI is better on the historical front but doesn’t seem to provide total return data.

I’ve been turning to index fund prices as an alternative, therefore.

In many ways, this is probably a better way to benchmark your returns, even though it is a lower hurdle to clear. If you go the passive route, then it’s the fund you’re buying, with all its associated costs, not the underlying index.

Choosing a fund to measure against

Many UK global trackers are priced in US dollars, so aren’t as useful for my measuring purposes. A lot of them have only been going a few years, so don’t have oodles of historical data available.

I think the iShares Core MSCI World ETF (SWDA) is the oldest UK available global tracker, dating back to 2009. But it’s in dollars.

The SPDR MSCI World ETF from State Street (ACWI) goes back to 2011 and Vanguard’s VWRL, which I hold myself, joined us in 2012. These are both quoted in pounds.

I’ve been using VWRL recently, mainly because I am familiar with it. The performance figures on Vanguard’s own site seem to be in US dollars (boo!) so I’ve been using those from Morningstar instead.

But I’m now leaning towards using Vanguard’s Global All Cap Index Fund. It was launched in November 2016, so it’s of limited use for historical measurement. However, it’s priced in pounds and its accumulation units provide an easy way to get up to date figures on a total return basis.

What’s more, you can get all the historical daily prices you might need from Vanguard’s website.

And a little closer to home

I’m also thinking that I should reflect the fact that my portfolio has a fairly substantial UK weighting of 30%.

As the UK market only accounts some 5% of most global indices, this makes a significant difference.

So, I’ve decided that I should also compare my returns to Vanguard’s LifeStrategy 100 fund. It has 22% in the UK, so it’s a reasonably close match for my portfolio. It was launched in June 2011, so it offers a decent amount of readily accessible historical data.

If I were to go fully passive, I’m not sure whether I would stick with purely global trackers or give myself a little more of a UK weighting with something like a LifeStrategy fund. My spending is likely to be predominantly in pounds, so the latter appeals on that front.

The LifeStrategy fund has been an easier comparative recently, of course, and you could argue my choice to have that high a UK weighting is self-inflicted and not a good reason to use a different benchmark.

I’m planning to do another portfolio round-up in early July, and I think that will probably be against the global tracker, the LifeStrategy fund and the All-Share.

Keeping a wholly UK measure in there as a reference point seems sensible, as it provides a sense of continuity. It’s also useful to see just how the UK market is performing relative to everything else and how much of my performance is affected by my higher UK weighting.

What do you do?

I’d be interested to hear what others do when it comes to portfolio performance.

Do you measure it, and if so how precisely and for how long for have you done so? And do you stick to UK indices or venture a little further afield?

Let me know in the comments section below.



Please note that I may own some of the investments mentioned above -- you can see my current holdings on my portfolio page.

Nothing on this website should be regarded as a buy or sell recommendation as I'm just a random person writing a blog in his spare time and I am not authorised to give financial advice. Always do your own research and seek financial advice if necessary!

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4 Replies to “Picking My Perfect Performance Measure”

  1. Hi,
    I now compare our performance against the Vanguard Life Strategy 80 fund. The reason being that if I were to go passive then I would stick the lot into that fund or another version of the Life Strategy offerings. My wife is very cautious and has her portfolio split 50/50 cash and investments so I guess the VLS 60 may have been a better choice. Either way, for an all in one comparator I think the Vanguard Life Strategy funds offer a good choice.

  2. Another vote for VLS 80 as a benchmark.

    But to track performance in Google Sheets to calculate money weighted returns using XIRR, I switched to 80% HMWO and 20% AGBP for the real time price updates.

    Admittedly you can screen scrape VLS fund prices using the IMPORTXML function, but it’s not for the faint-hearted….

    =value(SUBSTITUTE(query(IMPORTXML(“http://www.hl.co.uk/funds/fund-discounts,-prices–and–factsheets/search-results/v/vanguard-lifestrategy-80-equity-accumulation”,”//span[@class=’bid price-divide’]”),”select* limit 1″,0),”p”,””,1))/100

  3. Thanks, both. I feel LS100 is probably more appropriate for my portfolio at the moment. Although I have some infrastructure trusts and a few trusts that hold fixed income, combined they are far less than 20% right now.

    That formula doesn’t seem to work in my Google sheet for some reason – user error I suspect!

  4. I measure portfolio performance against the FTSE All Share Total Return because that’s where I am mostly invested. I currently measure this on a monthly and calendar yearly basis. That index goes back to when I started investing in 1986 so I have been able to construct a full historic record.

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