Everytime i have produced a presentation for client, I added the line: “past performance is not a guide to the future.”
But the only problem with this is history is all we have to learn from, so how should you consider this when you are selecting your investments.
The key here, isn’t to ignore past performance, but to understand what it’s really telling you — and what it isn’t.
A Case Study: Emerging Markets 2000–2010
If you looked at the numbers in 2010, Emerging Market (EM) funds were the stars of the show. From 2000 to 2010, they produced annual returns of around 10–12%, far outpacing developed markets. The story looked irresistible: China was booming, commodities were soaring, and global investors were piling in.
But the next decade told a very different story. From 2010 to 2020, EM equities lagged badly behind US markets. Those who bought in based solely on the 2000–2010 track record would have been disappointed.
The lesson: performance alone doesn’t explain why returns were good or bad. You need to look under the bonnet.
Why the “Why” Matters
When you see strong past performance, ask:
- What drove it? Was it economic growth, falling interest rates, a commodity boom, or a tech revolution?
- Is it repeatable? Was it a one-off event, or something sustainable?
- How did the manager invest? Did they take concentrated bets, or spread risk across many companies and sectors?
Without these answers, the performance number on its own is just a story without a plot.
What to Look For Beyond the Numbers
- Consistency – Was performance delivered steadily, or in a single lucky year?
- Risk taken – Did the manager take outsized bets that just happened to pay off?
- Process – Does the fund follow a clear investment philosophy, or chase what’s hot?
- Costs – A great return can be eaten away by high fees over time.
- Manager track record – Has the same person been running the fund for years, or did a new manager arrive mid-way through the performance period?
Different Styles, Different Outcomes
Not all managers look for the same thing:
- Value investors search for shares that look cheap compared to earnings or assets. They often buy companies that are unloved, waiting for sentiment to turn.
- Turnaround specialists back companies in trouble, hoping management changes or restructuring will deliver a recovery.
- Growth managers chase companies with strong revenue and profit growth, often in fast-moving industries like technology.
Each style can produce excellent performance in the right conditions — but also long periods of underperformance.
The Bottom Line
Past performance is a useful tool — but only if you treat it as a clue, not a promise. Look deeper into the why, understand the manager’s style, and consider whether those conditions are likely to persist.
Key Takeaways
- Emerging Markets show how past winners can become laggards in the next decade.
- Numbers don’t tell the full story — always dig into what drove them.
- Look at consistency, risk, and manager style, not just the headline return.
- Remember: a strong track record should make you curious, not convinced.
Action point for readers: Next time you read a factsheet, go beyond the 1, 3, or 5 year numbers. Ask: who’s managing this, how do they invest, and are those conditions likely to last?
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