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How we choose our favourite funds

When looking for funds, we follow our 10 commandments.

What makes a fund stand out from the thousands on offer? Looking at past performance simply isn’t enough and a study in 2011* actually showed that using it to predict the future is about as accurate as rolling a dice! Our 10 commandments help us ensure the fund managers are squeaky clean and give us a framework so we can constantly compare our funds and review them against it. Let’s take a look.

1. Managers who don’t hug the benchmark

We stay away from funds that try to only replicate the index they’re measured against. We want managers that have conviction in their own ideas and don’t feel compelled to invest in companies or industries they find less attractive, just because they make up a large part of the benchmark. No peer pressure here!

2. Tasting their own cooking

Ever heard the phrase ‘never trust a thin chef’? Well, the idea behind this phrase works with investing too. We think it’s really important that managers invest their own money into their own fund and show that they have the same interests as you, their investors. Some of our favourite managers own their own fund management companies too.

3. Crystal clear objectives

We like fund managers who have clear goals and a consistently good way of getting there. It means they know what they’re doing. Only when managers define how they want their success to be measured can we accurately decide what we think of them managing your money.

4. Eyes on the prize

Do they have the endgame in sight? We want fund managers who focus on making you wealthier, not just simply beating a market. After all, if the market drops 26% and your fund drops 25%, technically the manager might have beaten the market, but they’ve also lost you a quarter of your money!

5. Concern in the right places

Managers should be more concerned about the fundamentals behind the business they are investing in, and less concerned with any price risk. Financially sound, well-run businesses might seem expensive, but they can often survive, and even thrive, during economic downturns whereas lower quality businesses may not, no matter how cheap their share prices are.

6. Long-term horizons

Like a sunset from the Spanish Pyrenees to the French Alps (the longest photographed sightline in the world at 443 km**), we want our managers to have long horizons.

Short term share price movements are notoriously difficult to predict, but over the long term they do tend to match company profits. We think managers who choose their investments based on long-term fundamentals and actually prefer to hold an investment for the long term should reap the benefits for you. Patience is a virtue.

7. Concentrated portfolios

Can their portfolios strike the right balance? Outperforming becomes more and more difficult as the number of stock holdings increases. We look for managers who can find a nice balance between diversification (spreading money across different sectors) and investing with conviction in fewer positions. It’s a fine line but it needs to be right.

8. We consider ethical and sustainable funds

We believe in long-term investment, so we seek out managers that appreciate and understand the importance of Environmental, Social and Governance (ESG) factors.

9. Limiting fund size

Are managers willing to limit the size of their funds? Large pools of assets make things tricky for fund managers – they either have to take large positions in their best ideas, making them hard to sell if things go wrong, or invest in larger numbers of companies, some of which will inevitably be less attractive ideas.

All things considered, we want managers who will restrict the size of their funds to a more manageable level so they can focus on their best investment ideas for your money.

10. Longevity of manager

Will the manager be there for the long haul? We believe a strong, stable and long-term management team with a track record of success is vital to the ongoing success of any managed investment.


*WM Company, 2011

**Pic de Finestrelles, Spanish Pyrenees to Pic Gaspard, French Alps. Calgary Vision Centre, November 2019


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