relative performance
Relative performance is how your investment did compared to a benchmark like the market index, more than whether it made money on its own.
In plain English
"My fund grew by 12% last year, I should be happy." "Happy compared to what?" "What do you mean compared to what, 12% is 12%." "But the NGX All Share Index grew by 20% that same year. So your fund actually underperformed. You made money, yes, but you made less than the market gave everyone else for free just by sitting there."
That conversation is the whole idea of relative performance in one breath. It is not enough to ask whether an investment went up. You have to ask whether it went up more or less than the thing you are comparing it to, usually a benchmark index or a group of similar investments.
Say you have a friend in Leeds who put money into two Nigerian mutual funds through a portfolio manager back home. Fund A returned 15% in a year. Sounds impressive until you learn the average equity fund in Nigeria returned 22% that same year. Fund A made money, but on a relative basis, it lagged behind its peers. The manager either made poor choices or was too cautious when the market was rewarding boldness.
This matters most for people paying someone to manage their money. A fund manager charging you fees should be beating the benchmark, more than avoiding losses. If your money would have done better sitting calmly in an index fund tracking the NGX 30, then the fancy stock picking and the fees you paid were not worth it.
It also matters for comparing yourself honestly. Someone doing their own trading on the Nigerian Exchange might feel clever because their portfolio is up 10% this year. But if bank stocks alone rose 30% in that period, that trader was actually leaving money on the table by not being in the right sector.
You invested ₦500,000 in a fund that grew to ₦560,000 in a year, a 12% return. The benchmark index rose 20% in the same period. In absolute terms you gained ₦60,000. In relative terms, you underperformed the market by 8 percentage points, meaning a simple index fund would have given you roughly ₦100,000 in gains instead.
Questions people ask
What benchmark should I compare my Nigerian investments to?
For Nigerian equities, the NGX All Share Index or the NGX 30 is the usual yardstick. For bonds or fixed income funds, compare against similar fixed income indices or the average return of comparable funds, not against equities, since they behave differently.
Can an investment lose money but still have good relative performance?
Yes. If your portfolio fell by 5% during a year when the broader market fell by 15%, you technically outperformed on a relative basis, even though you still lost money in absolute terms. It stings less, but it does not fill your pocket.
Is relative performance the only thing that matters when choosing a fund?
No. You should also look at consistency over several years, the risks the manager took to get those returns, and the fees charged. A fund that barely beats its benchmark but charges high fees may still leave you worse off than a cheaper index fund.
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