(13-10-2013, 02:47 PM)corydorus Wrote:(13-10-2013, 02:29 PM)Clement Wrote:(13-10-2013, 02:22 PM)corydorus Wrote: I play with XIRR measure often. One thing to be careful is when fund first started, they can play with relative small size of funding. The performance can be manipulated by having more funds introduced for different markets, take higher risk on each of them or with low cost structure. When one of them do well, it is then widely marketed that the fund has been doing consistently well for many years with strong performance. And right after most retailers steps in, within a few years, the performance dropped.
Some strategies do well with small funds while others do well with larger funds. It all depends on the fund's investment intentions, ie passive stake or activist investment.
I understand this logic. My intention is to warn about possible manipulations by hands behind funds who play by numbers. Is like a flip of the coin. By throwing more coins, and when one of them do well consecutively, they are pushed out as champion. This will attract a lot of funding however such game cannot go on forever and soon performance shows up later again based on flip of the coin.
There are reporting standards for funds and I always prefer funds to that are gips compliant. I think investment process based appraisal might be easier to abuse. It is always in the fund's best interests to keep the secrets to their success to themselves. Therefore, many funds will market themselves as having superior proprietary models enabling superior investments. It is best to invest in managers whose strategies we understand and are qualified to evaluate.