A large proportion of people who approach The Pensions Office for advice about the merits or otherwise of transferring an existing personal pension or executive pension policy believe that the investment performance of their current policy has been poor or very poor. In some cases our research reveals that, in fact, the investment performance has actually been good or very good when compared to other investment funds in the same sector.

What causes this unwarranted discontentment?

If, for example, over the last couple of years UK equities have fallen by 30% it would be reasonable to speculate that most funds investing in UK equities will also, therefore, have fallen by a similar percentage. In fact, of course, some of these funds will have fallen further than average whilst others will have fared better. An investor in a UK equity fund which, over this period of time, has fallen by, say, 20% should be clear that this fund has performed very well compared to its peers. But, unfortunately, many investors in this fund will simply be aware that the fund has lost 20% in value; not that it has out-performed its sector average.

Conversely, if UK equities rise in value by 20% many investors will be delighted if their UK equity fund increases by 10% even though the fund has badly under-performed the market.

So, to answer the headline question in this section, “How do you know?”

Fund performance statistics for almost all investment funds are widely and freely available, as are statistics for average performance of all funds in each asset class and sector. Even more helpfully, some data providers show the position of each fund within its sector league table over different time periods of past performance.

Past investment performance is by no means the only – or even the most important – guide to the most appropriate funds for an investor’s circumstances and requirements. But it is often a significant factor.

Many information providers also produce helpful statistics about the risk profile of each asset class, sector, and individual fund.

Balancing risk and investment performance in selecting investment funds is made easier with the availability of all this information. But how can an investor use these statistics to his or her best advantage?……