Update No. 104 – 15/03/13

I had always expected our holding to be quite uncorrelated with the market.  As I have mentioned previously, I have been surprised how much more correlated the prices have been than I expected, so I thought I’d look at the correlation in depth.

Prior to this week, there has been 103 Updates (generally weekly with a couple of short-reporting weeks when periods ended midweek).  We lead the market by a handsome margin, so I asked my wife Sue to estimate what percentage of the time EGP had beaten the market.  She thinks me more skilful than I am and was kind enough to stroke my ego and say 80%. In fact after 103 updates, the score was EGP 52 vs Benchmark 51 (53 to 51 after this week).  Given that after these 103 Updates we led the market by 23.12%, the obvious conclusion is that when the market beats EGP, it doesn’t beat us by the same margin.  In weeks when the market beats us, it has a 1.58% average winning margin.  In weeks when EGP beats the market, we have a 1.88% margin.  The cumulative difference leaves us where we stood last week, a cumulative 23.12% lead.

The true test of stability and conservatism is (in my view) how you perform when the market declines.  The Benchmark has been negative 44 out of 103 updates, in these 44 weeks; EGP has beaten the market 30 times (45 and 31 with this week).  In my view, this is a much more valid sign of conservatism than nearly any other indicator you can search for.  More conservative fund managers will tend to generate ‘relative outperformance’ when the market declines.  In fact 197.2% of our outperformance (as at last Friday – 45.59%/23.12%) has been generated in weeks when the market declined, that means – as I have predicted in every one of our regular shareholder letters – that we will customarily beat the market handsomely in periods of decline and keep pace with or even struggle to match it when it advances rapidly.

Now, I should point out 2 years is entirely too short to make reasoned judgements about the performance of a given fund, but I thought it valuable to consider how the ‘alpha’ (to use investing parlance I generally disdain) we have generated has materialised.

I will try to make a habit of checking and reporting on some of the above metrics perhaps twice a year to give a guide as to whether the fund is performing in the way I expect – Tony Hansen 15/03/13

EGP Fund No. 1 Pty Ltd. Up by 14.38%, leading the benchmark by 3.0% since January 1^st. Since inception, EGP Fund No. 1 Pty Ltd is Up by 39.24%, leading the benchmark by 23.16% all-time (April 1^st 2011).