Investor Corner/Building and judging a portfolio/Evaluating Funds
3.3.6 Peer Comparison
Peer comparison ranks a fund against others in the same category on returns, risk, consistency and cost. Quartile rankings across multiple time periods give a considerably clearer picture than looking at absolute return numbers alone.
Why absolute return alone is not enough
A fund returning 14% in a given year sounds appealing in isolation, but that figure means something quite different if every other fund in its category returned 20% that same year, versus if the category average was only 8%. Peer comparison places a fund's result in the actual context of what was realistically achievable given prevailing market conditions for that specific category.
What quartile rankings actually show
Ranking every fund in a category by return and dividing them into four equal quartiles reveals which specific segment of its peer group a fund actually falls into. A fund consistently landing in the top quartile across several different multi-year periods has demonstrated something meaningfully more reliable than one that happened to land in the top quartile only once, during a single favourable period.
Using peer comparison sensibly
A fund does not need to be top quartile in every single period to be a genuinely good, reasonable choice; consistently landing in the top half across most periods, combined with reasonable cost and risk relative to peers, is often a more realistic and durable standard to look for than demanding first-quartile performance every single time.
How PriLytics helps. PriLytics lets you compare your holdings' performance against a benchmark over any period, giving you the direct comparison that underlies any peer ranking exercise. Compare against a benchmark.