Is Investing into Award Winning Funds A Good Strategy? (Part 1)

One of the simplest strategy many Unit Trust investors use to select unit trust fund is refer to "Award Winning" funds. In this context, the most widely acknowledge awards for unit trust performance would be that of the annual "Lipper Fund Award". As a matter of fact during the early years of this blog, we too track and revered the results of Lipper Fund Award  from 2012 to 2017. 

Fast forward five years to the present day, we now raise the question of the effectiveness of the strategy to invest into award winning funds. We seek to answer two keys questions:

1. If one was to invest into award winning funds in 2017, what would be the performance (cumulative returns) of the funds as of today?
2. Are those award winning funds in 2017 remain as leader (the best) as of today or other rival funds within the same category have better result?

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Our analysis to the questions will be via award categories, with this blog post focussing on award categories under the "Malaysia Equity" for 3 Years and 5 Years

1) If one was to invest into award winning funds in 2017, what would be the performance today?

We will derive the following outcomes in order to answer the 1st Question:

• The cumulative returns (%) of the award winning funds from 2nd March 2017 (a day after result was announced) to 1st June 2022 
• The estimated annualized return of the award winning funds
• Are the estimated annualized return of the award winning funds is higher than 5% ? Otherwise it would be wiser to invest your money in ASB, ASNB or just leaving it in EPF

Derived outcomes of 2017 Lipper Award winning funds under the group of "Malaysia Equity" for 3 Years and 5 Years

Clearly from the table above, 75% of 2017 Lipper Award winning funds have performed poorly over the past five year in 9 out of 12 "Malaysia Equity" categories. Note: Poor performance in this analysis is defined as less than 5% in annualised returns.

2. Are those award winning funds in 2017 remain as leader (the best) as of today?

The analyis for Question 2 comes as no surprise with rival/competitor funds under similar categories of the 2017 Lipper Award winning funds performing multiple times better. 

We also observed that annualised returns of rival/competitor funds for all categories exceed the 5% benchmark. In other words, investing into rival/competitor funds have better risk vs reward outcome.

Conclusion for Part 1

Clearly we have shown that investing into award winning funds might not be the best strategy to adopt (at least for investing into 2017 award winners under "Malaysia Equity" category). Future Parts of this topic will see us analyse other award fund categories for 2017 as well as other award winning funds from 2018 onwards.

By then, we hope to be able to conclusively conclude that investing into award winning funds might not be the best strategy.

Cheers and Happy Investing