How do you measure fund performance?

I was talking to a client yesterday about an investment he made last year. Despite all that has happened in the market in the last year, he had made 3% return on his investment over 12 months. But he wasn’t happy as equity markets had done double digits over the same period.

I had to remind him that he didn’t want to get equity type returns, he was looking to beat interest rates, which were offering 0.5%. He should be delighted that he had earned 6 times than he would have got sitting on deposit. He had lost sight of what his benchmark was. This is not uncommon as most people don’t have something to measure their fund performance against so they don’t know if it has performed well or not.

Use a benchmark to measure fund performance?

The client that I just spoke about picked a benchmark (although he had to be reminded of that!); he wanted to beat cash. This year, he comfortably beat it too but there are no guarantees that he will beat it every year.

The benchmark you use must be comparable to the investment strategy that you adopt. There is no point in taking a low risk investment approach and then looking at the returns of the equity market. They are not comparable. Just as equities can produce greater returns, they can produce greater losses.

At Bluewater, we don’t try to beat a benchmark, we try to match it. Capital markets are the best mechanism we have to calculate the value of an asset. By trying to match the market, we believe that you will enjoy greater returns in the long run.

Use a goal to measure fund performance?

I much prefer using this method to measure fund performance. Using the benchmark method usually results in you getting jealous because there is a fund that did better. You then switch at the wrong time and end up losing more money than if you’d stayed where you were.

Money is enjoyed most when you are spending it on something that is important to you. It may be a trip of a lifetime, children’s education, a career change. If you know what you need to spend it on and when, you can work out how much you need your money to grow by.

This is your measurement of fund performance. Will the money I invested pay for my children’s education? Will it help me pay off my mortgage 10 years earlier? Will it help me to change careers?

How do you measure your fund performance? Or do you measure it at all?

If you have any questions, you can contact me directly at