Why We Think that Recompound is a Better Alternative to Stock Mutual Funds? (Part II)
TLDR: Retail investors do not have to abide by the same regulations as stock mutual funds (reksadana saham), which in our opinion, impedes their investment performance
This post is a continuation of our previous blog post:
In the previous post, we highlighted that we are, by system, naturally incentivized to grow our clients’ portfolio consistently, a total opposite compared to mutual funds which charge various fees irrespective of their investment performance.
In this blog post, we argue that current regulations itself impede the ability of these equity mutual funds to generate long term returns for their clients.
Constraint 1: On Risk Management
BAB 1 PASAL 1 AYAT 3:
Reksa Dana Saham adalah Reksa Dana yang melakukan investasi paling sedikit 80% (delapan puluh persen) dari Nilai Aktiva Bersih dalam bentuk Efek bersifat ekuitas.
What this means —> in the event of the entire stock market being overvalued / a force majeur happening (i.e. 2020 COVID-19 crash / 2008 subprime mortgage crash), a fund manager in a mutual fund cannot cash out more than 20% of its entire portfolio.
This, in our opinion, contradicts the essence of risk management: limiting your losses to be as small as possible!
Constraint 2: On Generating Investment Returns
BAB 1 PASAL 6 AYAT 1d:
Manajer Investasi dilarang melakukan tindakan yang dapat menyebabkan Reksa Dana berbentuk Kontrak Investasi Kolektif: memiliki Efek yang diterbitkan oleh 1 (satu) Pihak lebih dari 10% (sepuluh persen) dari Nilai Aktiva Bersih Reksa Dana pada setiap saat;
What this means:
If a fund manager within a mutual fund has developed a strong conviction with a stock and has high confident that this stock has a high ROI —> he / she cannot go beyond 10% of portfolio.
If we position ourselves as those fund managers, we empathize with them. Why? Because fundamentally great stocks are rare!
It is going to be a major letdown if we have to randomly cherrypick mediocre stocks to replace our meticulously researched stock with great fundamentals, just because of this constraint.
What About Recompound?
On the contrary: Recompound which functions like a retail investor, by design, outperforms these equity mutual funds because we do not need to satisfy any of the above constraints.
Why? Because if we abide by these constraints, our ability to produce returns diminishes significantly, hence decreasing our overall revenue, because our revenue solely depends on our clients’ portfolio growth. Remember part 1?
It is not that we are geniuses. We are lucky that these constraints become our natural competitive advantage against the much bigger incumbent players.
Combine this with the incentive alignment in part 1, we are confident that we can deliver consistent portfolio growth to our clients 🙏.