MONEY
FUND MANAGERS
XXXXXXX
A
fund manager is very
much like the captain
of a ship. Those running
passive funds have their
course dictated by the index they
aim to replicate, but active managers
are a different breed. We want to
believe we have the best, but how
can you tell between a James T Kirk
and a Captain Birdseye?
Just because you do not get a
choice as to who will manage
your money, it doesn’t mean you
shouldn’t consider who it is running
the fund. Resources that rate
managers, such as this one at FE
Trustnet, can be helpful.
But what else makes a good
manager? Do they display qualities
at an early age and mark themselves
out as special because they are child
prodigies in certain fields? If only it
were that easy...
Pádraig Floyd asks the experts
just what it is that makes a good
fund manager
4
trustnetdirect.com
YOU DON’T WIN
ANYTHING WITH KIDS
Nine times out of 10, a good
manager will be someone with
a track record, says Darius
McDermott, managing director at
Chelsea Financial Services.
“We rarely invest with a brand
new fund manager, but occasionally
one stands out and we take
the chance. This is because an
experienced fund manager can
show how their investment process
works throughout the market cycle
and can articulate what an investor
should expect from the fund at
different times.”
McDermott adds that good fund
managers are consistent in the way
they approach their investments,
even when things are going badly.
These periods of
underperformance do not mean
they have lost the knack for
managing money. The footballing
analogy would be that they haven’t
become a bad manager overnight.
trustnetdirect.com
THERE IS A FINE LINE
BETWEEN ARROGANCE
AND CONFIDENCE AND
FUND MANAGERS NEED
A LITTLE OF EACH, BUT
IT IS THE ARROGANT
ONES WHO BLOW UP AS
THEY DON’T BELIEVE
THEY CAN BE WRONG
Instead, their style of investment
doesn’t suit the prevailing market
conditions.
In such circumstances, fine tuning
a process is perfectly acceptable,
indeed it is even to be encouraged,
but changing the way they invest is
very, very bad.
McDermott also likes to delve
further into their background and
understand how keen they have
been to manage money: “Some take
blue-prints of funds they want to
run to their chief investment officer,
for example,” he added.
THE BACKSTORY
Mark Dampier, research director
at Hargreaves Lansdown, says it is
“unbelievably difficult” to determine
a good manager.
Fund returns or consistency
of investment approach tell you
something about their performance,
but for him, a good fund manager
needs to be a good lateral thinker.
Dampier cites the attitude of most
managers towards tobacco stocks
at the turn of this century. The
consensus was they were about to be
legislated out of existence, but they
have instead created a monopoly
industry with high barriers to entry,
with the FTSE 350 Tobacco index
increasing in value by 1,851 per cent.
Those who saw that trend, or
avoided the dotcom bubble – or
perhaps were less exposed to the
crazy markets of 2008 and 2011
– demonstrate the necessary
lateral thinking required to avoid
replicating what others are doing.
And they are special.
BACK TO SCHOOL
For this reason, Dampier likes to take
his research back to before they were
in the industry.
“I look at their degree, as a
straight economics student may be
too convinced of their own ability.
Whereas, if they have a different
way of thinking – through having
studied politics and economics,
history or English – it may help
them with how well they reason
out situations.”
Where a manager went to school
shouldn’t matter, but it may offer
an interesting insight. A recent
eVestment study of fund managers
in the US found the industry to be
dominated by Ivy League alumni,
with almost 50 per cent from
Pennsylvania, Harvard, Columbia
and Cornell.
Almost 40 per cent held only
a bachelor’s degree and a similar
number held an MBA. This doesn’t
prove their ability at running
money, but in an industry so
heavily focused on research, it
may offer a way of differentiating
between individual managers.
ALCHEMY, ALCHEMY
Ultimately, what makes a good
manager is not an absolute science,
says Adrian Lowcock, head of
investing at AXA Wealth.
There are too many factors
involved in making a good manager
and each one needs to be considered
in isolation, but also within the
context of what that contributes to
the whole.
5