A detailed look at compound and cumulative (annualised) returns over short, medium & long terms
Below is the chart for the Mobius Unit Value (UV) from October 1997 (to March 2021). The UV started at 100p in October 1997. The Mobius unit class is Accumulate (like most UK investment clubs).
In the early years, the UV kept floating around the 100p mark as Mobius was going through a learning & experimenting phase; It was quickly and severely hit by the Y2K Internet bubble with UV dropping to its lowest point (65p): The sharp fall was compounded by a few learning mistakes, like too many listings in our portfolio, emotion taking over S/L discipline and either selling too quickly or not at all.
It took a good 15 years for the UV to really take off (early 2012); and then double within 4 years. From there on, a combination of (1) a strong discipline and experience and (2) a well established core team that got to know & understand the group’s dynamic got the UV to its current high of 477p (March 2021).
By then, the club started to recognise good companies and then keep accumulating (top ups) as the investment cases strengthened. A good example is Persimmon held for 10 years and 3 months with a 25% AER (with 4 top-ups).
The UV chart follows a pseudo-linear upward trend from 2012, apart from market wide turmoils such as the late 2018 sell off (fear over US/China trade war combined with one of the longest bull run) and then quickly followed by the pandemic (covid-19) impact in 2020/21.
The table below presents the current compound annualised returns (AERs) for different periods, short, medium and long of 1-, 3-, 5-, 10- year and since inception (October 1997). These AERs are computed for rolling investment periods of 12-, 36-, 60 and 120-month and from October 1997 todate (March 2021).
|1 year||3 years||5 years||10 years||Since Oct'97|
These assume the same investment patterns as achieved by investment clubs; that is a regular fixed amount is invested on a monthly basis for the period. That allows like-for-like comparison. These are called compound annualised (AER) because they take into account the cash-flow series of the investment throughout the rolling investment period.
For example, if you invested £100 per month for the last 36 months, your matured Mobius fund would have received an AER of 25.2%; likewise, if you invested £100 per month from October 1997, your matured fund in March 2021 would have experienced the equivalent of 10.6% annualised return.
The more recent annualised returns are much better than those of longer periods, which corresponds to the UV’s strong performance over the last decade.
Discrete annual returns
Here, we review the performance using calendar years. The table below shows Mobius compound and cumulative annual returns over the last three calendar years
These returns are for investment made for the whole calendar year. For the compound rates, it assumes 12 fixed monthly instalments whereas for the cumulative rates assumes a single instalment made at the beginning of the year.
The table above shows the benefits of regular investments, which is a common recommendation for long term investing (in particular in mutual funds): This is clearly shown by looking at difference between the cumulative and compound returns (the exception being 2018). Regular investing cater for market volatility and short-term fluctuations, often led by geo-political or macro-economics well outside the remit of the fund objectives. So trying to time entries is often difficult. This concept also relates strongly to the old adage "time in the market, not timing the market ". In Mobius, we undertake a full analysis of this related concept too. You can find the detailed analysis here.
Although, by in large, cumulative returns do not apply to investment clubs (regular investing is the norm), these returns are added here for completion and for comparison purposes. Most mutual funds present their performance in terms of cumulative returns
New UV highs
There are 12 monthly valuations (UVs) each year. Another measure of performance could be the number of new highs achieved in any particular year (perhaps just a natural or a mathematical curiosity). Interesting to note in 2017 and 2018, the UV kept powering to a new highs.