To return to the theme of investment management, it is today widely recognised that to better the average trend in prices in any investment sector by a consistent 1-2% p.a. is a considerable challenge for any fund manager.
Of course, most funds do achieve short-term bursts of performance significantly better or worse than the average, but the curious thing about the historical evidence we have is that it shows that the majority of these deviations are "corrected" (or reversed) within an equally short period thereafter.
To put this more specifically, the majority of funds which do exceptionally well over a short period of, say, two years are likely to do less well than the average over the next 2 years. This does not alter the fact that, as we have seen, such short-term deviations have a very considerable influence on the amount an investor receives at any point in time. But it is important to recognise that these deviations are essentially unpredictable (especially when one is looking 10 or 20 years ahead). A consistently above-average performance of a fund (i.e. the consistent growth in unit value at above, and fall in unit value at below, the average rate for that market) will mean that there is a higher probability that the investor cashing-in his units at any point in time will receive more than the investor in a less consistent fund.
It does not mean that he will always do better.
To some extent, it can be argued, the above distinction is academic, since few funds show such consistency. In practical terms, the important thing is to avoid funds that have done consistently worse than the average achieved by their competitors and those that are more risky. In the latter category come most "specialised" unit trusts, for example those investing overseas or in only one sector of the stock market.
And there is also a good deal to be said for sticking to the larger unit-linked offices and unit trust groups which have the most experience in the business.
The phrase "rose in value" is itself a little misleading, and it is worth making a brief digression from investment management to explain it.
The point is that it is not necessary for the level of investment prices (or, as we shall say, unit prices, as these reflect market prices) to be higher at maturity than at the start of the policy period for the investor to make a useful profit. What determines the amount of the gain is the relationship between the average price paid for units and the actual unit price on encashment. The average acquisition cost of units is determined by market movements... see: Investment Value