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A great first quarter for Vector in 2017

13 apr 2017

Global equity has had a strong performance during the first few months of the year, ending the quarter on a 5.4% gain. With a return of 11.8%, Emerging markets in particular had an exceptional start. Yet, Q1 2017 has not only been good in absolute terms. In relative terms it has been one of the best quarters that Navigator has had since its inception.

Last month Navigator and Flexible recorded returns of 1.81% and 1.69% respectively – compared to 0.57% for the index. The year-to-date alpha of Navigator now stands at 3.5% compared to the MSCI All Countries NR (Euro).  We have seen that most of this alpha comes from our stock-selection component, which has profited considerably from the fall in stock-to-stock correlations that we have seen over the past few months.

While short-term outperformance is nice to have, and a welcome change after the less inspiring results of 2016, our tried and tested investors know that we seek to add value over longer rather than shorter cycles. The table below is meant to illustrate this point: it shows the absolute and relative performance of Navigator compared to the Morningstar Category (Large-Cap Blend Equity) over different periods, ranging from a single quarter (the last column) to a 14.25 year holding period (the first column).

This table shows that if, for instance, you had invested 100€ in Navigator in 2003 you would’ve ended up with 347€ at Q1 2017 (i.e. over a 14.25 year holding period). Had you opted to invest in the Large-Cap Blend Equity category instead this gain would have declined to 243€. This implies a 104€ differential between both investments, which equates to an annualized excess return of 2.7% that Vector has achieved w.r.t. the category over this timeframe. As we move from left to right, the holding period declines with a year for every single column, but the reasoning behind it remains the same.

The final row shows the annualized outperformance of Navigator over these timeframes. As you can see it has paid off to keep the long-term in mind.  After all, both on an absolute and relative basis all the numbers shown in the table have a soothing green color.

Excellent market timers that invested 100€ in Navigator in January 2003 would have ended up with 347€ in their pocket as of quarter end 2017, which is 104€ better than when they had opted to invest their assets in the average global equity fund.

Yet, even investors that timed the market very badly and who started their investment career in January 2008, which turned out to be a terrible year for the stock markets, still earned a lot of money in the decade that followed.

In relative terms, we see that shareholders who invested in 2012, when Navigator’s quantitative approach was thoroughly reviewed, earned the most outperformance on an annualized basis w.r.t. the Morningstar Category (outperforming the category with an average 5.4% per year). Accordingly, it would appear that the revision of the model paid off for our investors.