- October 9, 2019
- Bob Quinn
I wrote last week about the glitzy Las Vegas magic act with a difference. Siegfried and Roy the tiger tamers. Catch the blog here if you missed it. It brought to mind a certain fund that was pedalled here in the early 2000s, Bank of Ireland’s Evergreen Fund.
The Evergreen fund was launched to great fanfare in 2003 and it performed very well until the crash, at which point it began to lose value at an alarming rate.
The reasons for this are obvious when you look into the make-up of the fund. It was very heavily weighted towards shares traded on the ISEQ, the Irish stock exchange, making it very sensitive to what might be going on in the Irish economy. Not only that but property and banks featured strongly in its makeup.
From 2003 to 2007, it kept going up and up, just like property prices. Its stellar track record blinded investors to the inherent riskiness of the fund. It’s Siegfried and Roy all over again.
Risk is in the eye of the beholder
Then mid-way through 2007, the property bubble burst. The Celtic Tiger died. The fund tanked.
Evergreen was not, by definition, a low-risk fund (there was no capital guarantee, for example), though judging by two letters to the experts I happened to come across in my research, bemoaning the losses they were experiencing, it looked like neither investor understood the riskiness of the fund.
The Evergreen Fund is still available today. Bank of Ireland classes it as medium-to-high risk, defined as:
“Investments in this class offer the potential for higher returns, which tend to outperform deposits and inflation. These investments are spread over equities, property, and alternatives. Smaller amounts are in lower-risk assets. There is some risk in this investment type, which could see investors lose some of their capital during the market fluctuations.”
Sounds about right.
A more reliable outcome
I was at a conference this week run by the investment firm Dimensional.
Dimensional does just one thing and that is globally diversified investments; basically the opposite of the Evergreen Fund.
At the conference, the speaker was talking about a particular fund and question came from the floor. “How many securities in that portfolio?” a grey haired broker asked. “11,000” was the speakers one word response. There was silence in the room. And it wasn’t a shocked silence. It was an awed silence.
Those 11,000 securities (shares, bonds and so on) are typically in many countries, many sectors and many asset classes.
Now look at Evergreen. It was made up of a small concentration of mostly Irish shares so investors were unduly open to anything that might affect the Irish economy; it was weighted towards property and banks – banks at that time were over invested in property so that’s like a double helping of property. All told, it was a very risky proposition for anyone who needed to get access to the investment in the short-to-medium term – the fund lost 11.5 per cent on average each year between 2006 and 2009.
As a starting point to you investing, go global and avoid the obvious pitfalls of lack of diversification. Because when the lion bites, he’s sure to kill you.