There are a myriad of approaches to managing investment funds, none of which are likely to work well across all markets all of the time. In building a portfolio it really makes sense to use a variety of strategies, including actively managed funds and passive or index-tracking ones where they may be appropriate.
We have long argued that when choosing actively managed funds, it is vital to be selective since many managers do not outperform over the long-run. Through our regular, controversial Spot the Dog report we’ve also shone a spotlight on the funds that have delivered consistent poor performance.
The differences in performance between the best and worst-performing managers, particularly those investing in equities is enormous and is down to far more than just their relative fees and costs. Indeed over the last five years, data sourced from Lipper shows that the highest-returning fund in the UK All Companies sector generated a total return (including dividends reinvested) of +238%, while the worse actually dropped by -34%, and that was in a rising market.
Unfortunately investing isn’t reducible to the approach of a price comparison website. Analysing and selecting funds is far more complicated than picking the ones that have delivered the highest returns over, say, three or five years. In part that’s because funds will periodically experience changes to their investment teams, as individuals change jobs or are promoted to different roles.
In the most part, fund management remains a people business where typically a key individual, the fund manager, has the final say on which investments to make and when to sell them. That means it is important to understand who is running a fund before you invest, as the past performance of the fund – good, poor or indifferent – simply may not have been delivered by the person at the helm today.
In the search for investments we believe have strong future potential for our clients, we have built a significant research team comprised of a dozen analysts. They conduct detailed analysis not only on how funds and managers have performed in the past, but they also aim to get a deep insight into the manager’s process and philosophy, how they manage risk, what might trigger them to sell and invest, the resources at their disposal and how much money they can look after before it might start impacting the way they manager their funds. Much of this process involves face to face meetings, grilling fund managers to really understand what makes them tick and looking for signs that they remain motivated and committed to what they do.
The starting point for our research is to look beyond the fund a manager currently runs and to analyse their career track record, across the similar funds they have managed at other firms. We look for evidence that not only have they done better than the markets they specialise in after the impact of costs, but that they have achieved this through skill rather than having a few lucky breaks that have superficially covered them in glory.
To give you an insight into the equity fund managers who have added significant value over their careers, we have produced a groundbreaking new publication: the Top 100 Fund Managers report. The publication is based on our analysis of the career track records of fund managers running equity funds held by UK individual investors. To qualify, the managers had to have identifiable track records of at least five years, as we think this is the bare minimum timescale over which to draw an insight.
Many of these managers run funds we rate highly and are included in our Premier Selection, but this not the case for all of them. In some cases this is because their funds are no longer open to new investors, in others it is because we feel the funds they manage are too large or there may be other factors. It is always important to consider the future outlook for a fund before investing in it, not just the past performance alone. To do so would be like driving a car staring in the rear view mirror without keeping an eye on the road ahead. Nevertheless, we hope you will find the Top 100 Fund Manager report of interest. A copy of the report can be downloaded here.