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THE Rgio INVESTMENT FUND

THE Rgio INVESTMENT FUND HOLDS A TRULY EXCEPTIONAL RECORD.
BEATING THE STOCK MARKET DURING 21 OF THE LAST 24 YEARS.


CURRENT YEAR PERFORMANCE

The serious economic downturn that began in August 2007, has caused some very predictable effects. We are always reluctant to make investment and economic predictions, because so many forecasts published by 'experts' prove to be unreliable. However, by the end of 2006, two economic aspects became very obvious, but still no action was taken. There was excessive borrowing by private individuals and governments, and there were also very high property values. The measurement of the relationship between average house prices and average incomes had reached unprecedented levels. Therefore there was a prediction of difficulties given on this page in the December 2006, 'Outlook for 2007'.

Unfortunately for many people, who are now suffering the consequenses, our comments turned out to be correct (refer to the Archive at the foot of this page). There were however some circumstances, that were subsequently revealed, that could not have been anticipated by many people. For example, the purchases by many banks and financial institutions, of almost worthless packaged low quality mortgages, and other mortgage backed securities, was unbelievable and completely unexpected. It would now appear, that it was probably also unexpected by the management of the companies concerned. Seeing so many long established and once mighty banks and financial institutions on their knees, has been a unique and worrying experience.


We normally use annual charts to monitor performance, but an individual year does not illustrate the severity of the recession that began in 2007.
 The market peak was in June 2007 and by September 2007, easy cheap debt had finished. From peak to trough 21 months later, the market fell 48%.
During that time, the Rgio Fund only fell 18%, because there were almost no holdings in Retail, Building & Construction and Mining. The only Bank holdings were in banks that continued to be profitable through the recession. The Fund was also able to benefit when the market began to recover, because there had been selective buying of stakes in robust businesses, at very low prices late in 2008.

 

2008 REPORT

The Rgio Investment Fund has always followed a simple and logical philosophy. To invest in large companies, that provide products or services, which should continue to be in demand throughout economic cycles. During 2008, a year of unprecedented economic turbulence, the soundness of this philosophy was certainly tested. However, for the 19th time in 21 years, the Rgio Fund yet again beat the stock market. During one of the worst ever years for equities, the U.K. Stock Market ended 2008 down 32·78%. The Rgio Fund also suffered a capital loss, but by a far smaller amount, 12·34%. With economic cycles, there will inevitably be some years when the capital value of an equity fund reduces. If the reduction is less than the stock market average, then fund owners should be satisfied with their performance.

Annual income from dividends by the end of 2008, showed a strong increase, up 17·46% from the start of the year. The dividend income yield from the Fund at the year end was 4·7%.

The Rgio Fund uses a very long term trading strategy. In October 2008 there were occasions where investors were clearly panic selling equities, possibly just through fear. The stock market had big daily falls and this lowered the share prices of many perfectly sound companies. During bear markets, a time will occur when good investments become available at bargain prices. However, one can only be certain of that much later on. While many other investment funds were selling, the Rgio Fund used this as an opportunity to buy shares at those lower prices. If the current bear market is not yet over, there might be further opportunities to purchase.

   
FUND
WINS
MARKET WINS
WEEKS
FUND
MARKET INDEX
Number of weeks
Number of weeks
Trading weeks
(incl. part weeks)
Annual
performance
Annual
performance
1988
29
23
52
17.18%
6.48%
1989
29
23
52
49.27%
30.01%
1990
31
22
53
-2.86%
-14.31%
1991
34
19
53
29.18%
15.06%
1992
30
23
53
24.20%
14.83%
1993
31
21
53
26.36%
23.35%
1994
31
21
52
-3.23%
-9.55%
1995
27
25
52
15.07%
18.48%
1996
28
25
53
16.03%
10.60%
1997
31
22
53
34.69%
19.73%
1998
28
24
52
25.16%
10.91%
1999
25
27
52
13.06%
21.25%
2000
26
26
52
10.95%
-7.97%
2001
33
20
53
-4.89%
-15.41%
2002
35
18
53
-6.48%
-24.97%
2003
24
29
53
18.55%
16.56%
2004
28
25
53
17.80%
9.21%
2005
31
21
52
28.49%
18.10%
2006
26
26
52
17.57%
13.15%
2007
31
22
53
19.30%
2.03%
2008
33
20
53
-12.34%
-32.78%
2009
25
28
53
19.44%
24.96%
2010
21
31
52
13.74%
10.94%
2011
31
21
52

11.83%
-6.69%
           
Totals
698
562
1260
    
           
Annual compound growth over 24 years (Complete Years)
14.91%
5.04%

 

I CANNOT THINK IN PERCENTAGES - HOW MUCH WOULD I HAVE MADE?

1st Jan 1988
31st Dec 2007
31st Dec 2007
for every
 
Stock Market Average
Rgio Fund
           
£100
  
£374
  
£2,107
  
£1,000
  
£3,740
  
£21,069
  
£10,000
  

£37,401

  
£210,690
  
£100,000
  
£374,010
  
£2,106,900
  
£1,000,000
  
£3,740,100
  
£21,069,000
  


SHOW ME HOW COMPOUNDING HELPS.

1st Jan 1988
Fund Increase during
Fund Increase during
for every
the first year - 1988
year twenty - 2007
           
£100
  
£17
  
£340
  
£1,000
  
£172
  
£3,408
  
£10,000
  
£1,718
  
£34,085
  
£100,000
  
£17,180
  
£340,849
  
£1,000,000
  
£171,800
  
£3,408,487
  

The figures may look sensational, but they make no allowance for the illusory uplift of inflation. In other words, they show nominal rather than real returns.


The Investment section of the Rgio website is devoted to financial matters. Studying personal finance and economic relationships can be very rewarding. Although the underlying principles are relatively simple, there is so much jargon involved, that many people are put off learning about the subject. However, some knowledge of the basic concepts can certainly be very helpful, when financial products are being offered to you.

A real investment fund is featured on this site. The success over the last twenty years has been remarkable. You are welcome to follow the actual performance of the fund, and perhaps try to beat our fund manager. Annual performance charts can be accessed by using the links within the Investment section of this website.

You might have seen 'business opportunities' being offered for sale and then wondered, if it really is that good, why bother trying to sell the method.
The Rgio Lifestyle Equity Fund has achieved outstanding results, but our financial management is only available within Rgio. We do not sell, or market any financial services.

 

 



 


INVESTMENT ESSENTIAL
Don't put all your eggs in one basket.
- Spread risk.


ARCHIVE COMMENTS.

Posted 31st December 2006.

Outlook for 2007. Many opinions are offered by 'financial experts', but if these prophecies are subsequently reviewed, only a small proportion turn out to be accurate. Management of the RG Lifestyle Equity Fund concentrates on capital allocation, diversification and spread of risk. Unless there is an obvious and clear divergence by a fundamental indicator, no forecast of a company, or market performance is given. At present, market p/e ratios are at fairly normal historic levels and the market yield is above inflation, so that does provide a certain amount of confidence for U.K. equities. However, there are always concerns and at present there are two obvious situations, that are almost certainly going to cause future economic and market difficulties.

Oil is a commodity that has a significant effect on the input costs of many different industries. The world oil price continues at a very high historic level, even after allowing for inflationary adjustments. There must therefore be a considerable risk of upward pressure to price inflation. The move by manufacturers to low-cost countries during the past decade, has masked price inflation, because many consumer goods are now manufactured more cheaply and therefore can be retailed at lower prices. This manufacturing move was effectively a one-off, so those cost savings cannot be repeated. After many years of low inflation and associated low interest rates, a change is now possible.

Secondly, and a very much more dangerous situation, UK property values have more than doubled in five years, and this at a time when both consumer prices and wage inflation, have remained fairly low. The average house price / average income ratio now exceeds 5, and is even higher in some property hot-spot areas. The historic level has traditionally been around 3. Unless there has been a considerable and sustainable change to affordable demand, the present situation must constitute a property market bubble. First time buyers have literally been priced out of the housing market. This would usually constrain demand, but 'buy to let' investors, (many of whom are new to property investment and therefore will not have experienced, nor be prepared for, a decrease in asset values) have partly filled the void of first time buyers. Lenders have provided loans to 'buy to let' borrowers during recent years, whereas this did not occur during the previous property cycle that ended in 1990. As property prices have increased, the 'feeling' of prosperity has encouraged many home owners to spend more, by increasing their personal debt through re mortgaging, or other borrowing. Lenders have been very willingly to provide finance. Some mortgage lending has not followed the traditional practice of requiring a proportionate deposit from borrowers. 100% and even 125% mortgages have become quite common. This is a very high risk practice for both the lenders and borrowers. With increased price inflation being a possibility, which will necessitate higher interest rates, some borrowers could find that they are unable to meet their monthly mortgage repayments. Personal debt is now at unprecedented, and probably dangerous levels.

The conclusion to the property price bubble and excessive borrowing, must be a dramatic fall in house prices. Forecasting when that will happen is impossible, but the longer the boom continues, the greater will be the economic problems. There must be a strong likelihood that the excessive borrowing during this cycle, will result in a large number of mortgage defaults and repossessions. Previous housing downturns have often been accompanied by a slowdown in consumer spending, serious consequences for those who have over borrowed, and an economic slow down, or even recession.

If our fears about inflation, personal borrowing and the property bubble do occur, then the equity sectors to definitely avoid are Property, Construction, Banking and any discretionary spending categories such as non-food retailers.

As always, at the start of each new year, it will be interesting to see what happens to markets. Equity markets have historically enjoyed good years and suffered bad years. Predicting the order of these is unwise. If you want to beat the market, only buy businesses that you understand, ensure that they have a competitive advantage within their industry, and only buy when their valuation is low.

31st Dec. 2006
--------------------------------------------------------------------------------------------------------------------------

These Outlook notes were published on this page in 2006. The information has been retained for reference.

 

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