The Returns You See vs. The Returns You Keep
Two numbers, one fund
Every fund factsheet carries a headline number: the point-to-point return since inception. It is accurate, audited, and almost never what the investor sitting across from us actually earned.
The difference has a name — the behaviour gap — and it shows up because money moves in and out of a fund at the worst possible times. Investors pile in after a strong run and step back after a rough quarter, so their money-weighted return trails the fund’s own time-weighted return by a wide margin.
Why the gap keeps widening
- Recency bias. A fund that has just had a great 12 months attracts new inflows right when its cheapest entry point has already passed.
- Loss aversion. A 15% drawdown feels worse than a 15% gain feels good, so redemptions accelerate exactly when staying invested matters most.
- Noise dressed as signal. Daily NAV movements, news cycles, and peer comparisons all encourage action, when the correct response is usually none.
Closing the gap is a process problem, not a stock-picking problem
Our own return data across client portfolios that have followed a consistent framework shows the gap narrows sharply — not because we’re calling market tops, but because the process removes discretionary timing decisions from the client’s hands.
That means:
- Position sizing decided upfront, before market conditions can bias it.
- Rebalancing on a schedule, not a headline.
- A written framework that survives a change in mood.
The takeaway
The return you keep is a function of behaviour applied consistently over years, not the return printed on any single factsheet. Our job, as much as it is about strategy construction, is about keeping investors invested through the part of the cycle where the two numbers diverge the most.