Where does the higher performance of Finax come from?

Profits of Finax Intelligent Investing outperform the returns of competing mutual funds, as well as the capital markets themselves. We found and analyzed the reasons for our higher performance.

Radoslav Kasík | Our process | 17. April 2018

  • Finax Intelligent Investing offers optimal portfolio composition
  • We developed our investment strategies based on the 9 basic rules of a successful investor
  • A simple, cheap and non-taxed market solution is the most profitable

In the article Finax beats mutual funds and their performance, we have shown you how much Finax Intelligent Investing Portfolios outperform their Slovak competitors and the global markets themselves. Let’s take a look at the reasons for our higher revenues.

Through detailed analysis and preparation of our portfolios, we have come up with several factors that lead to higher performance of Finax´s products. Let me start with the more remarkable one – higher yield than the market average.

Portfolio composition

The basic difference is the composition of stocks in our portfolios and the MSCI World index, which we used to compare with market yields.

While Finax portfolios are made up of more than 6,000 shares, in the case of MSCI World it is just under 1 700 shares. Finax portfolios thus offer a wider diversification.

The MSCI World index is composed only of company stocks from 23 developed economies, which means that it does not contain stocks from developing countries, which achieved higher returns in the past 10 years. For instance, European stocks.

Finax portfolios also include a larger share of small and medium-sized companies that historically rank among the best assets.

Rebalancing

Finax's second major asset is our own way of rebalancing portfolios. For many, this is an unknown term, so we wrote a separate article to explain it.

The goal of rebalancing is to eliminate as much risk as possible and, in turn, increase revenue. We have succeeded. E.g. over the past 20 years, rebalancing has added more than 0.6% per year to dynamic Finax portfolios.

Note: All data relating to the historical development of the Finax portfolios is modelled and based on data back modelling. We described how to model historical performance in How do we model historical portfolio development. Past results are not a guarantee of future returns and your investment may result in a loss.



What about mutual funds?

Here, the math is relatively simple.

SPIVA (S&P Indices Versus Active) statistics, which is released every year by S&P Dow Jones Indices, compares the performance of mutual funds with indices. SPIVA clearly concludes that on a 10-year horizon, only 6.75% of European mutual funds outperform the market.

Since Finax outperforms 93% of European managed funds, it logically means that we also achieve better returns than mutual funds.

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Why is it so?

There are several reasons. However, the basic answer can be the principles we obeyed during the creation of Finax Intelligent Investing Portfolios. There are a few basic rules for a successful investment that will ensure the growth of your financial assets.

Human factor

People cannot manage their investments well. Wrong decisions of fund managers have the biggest share of guilt on performance lagging behind indices.

In the past, several studies examined whether investors had been able to beat the market in the long run. In all cases, the result was negative and it was attributed to emotions, lack of information and human inability to respond quickly enough to new facts.

That's why we prefer passive investing which requires no interference. The less decisions are needed, the better the performance. The biggest obstacle to a better valuation of mutual funds are their managers. 

Lower fees 

Moreover, these managers, their teams and technical security are not cheap at all. Someone has to pay them and they are paid by the investors in mutual funds. Thus, the higher the fees, the lower the return for investors.

Management fees in equity funds in Slovakia range from 1% to 3% per year, while Finax ETF fees are only around 0.2% per year.

If a manager wants to beat the market and charges 2% a year, he must beat the indices by additional 2% every year. With an average market return of 8% per year, the manager needs to perform at least 25% better than the market to at least match it. This is a difficult, maybe even impossible task.

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Tax smart principle 

The compared performances of the funds are net, meaning they are after tax.

The advantage of the ETF in Slovak tax legislation is the tax exemption from their revenues if the investment lasted for more than one year.

On the contrary, returns from mutual funds are liable to tax, so their net returns are automatically lower by at least 19%.

It is not enough to just invest, when you want to grow your property. You need to invest properly and know that there can be great differences between investments.

Finax was created to offer Slovaks an honest investment product. From the beginning, we wanted Finax Intelligent Investing to fulfill all of the 9 basic rules of a successful investment. That's why our portfolios are the best alternative to place your savings.

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