On Investing

Follow the leader

For an investment-related topic worth pondering, I’ve been inspired somewhat by this article on the negative impact of fund manager moves – both from the losing fund house’s and the end-investor’s perspective. Substantial outflows occur; investors missing out on the news of a move are caught out; and those in the know can be confused regarding the best course of action to take. Meanwhile, Woodford Equity Income has swelled to £6.2bn, with Jupiter AM’s Merlin range accounting for almost £1bn of that overall figure.

Some high-profile fund manager moves have evidenced the propensity of both intermediaries and direct investors to follow individuals. These real-life, modern-day Pied Piper of Hamelin figures put money in motion and shake up researchers’ recommended fund lists. Understandably, fund houses are now looking to downplay star quality, and instead emphasise team approach and investment process.

Advisers tell us that fund manager personalities don’t hold sway when they’re selecting funds, and that consistency of team and process matter to them. Yet stated intention and actual behaviour – as any good little researcher knows – often don’t align perfectly. Over 70 per cent of advisers consider three-year rolling averages an important factor when assessing fund performance; commonly a minimum track record of three years is a baseline requirement. But when a ‘star’ manager ups sticks, individual track record can trump all other fund selection criteria. In any case, almost three-fifths of advisers consider individual fund manager track record when assessing fund performance.

It is questionable whether we should revere fund manager track record in the first place. This isn’t something I’d really thought about before, until an adviser pointed out, “I’d rather have Harry Kane in my [football] team than Beckham… It’s taking a bit of a risk because he’s only had half a season, but I’d like the performance of Beckham from a 21-year-old.” Fresh talent is great, but it comes with risks attached.

Does anyone in fact benefit from fund manager upheavals, apart from the individuals themselves? Maybe boutiques do. Managers from the largest fund houses can crop up at smaller outfits – think Julie Dean’s move from Schroders to Sanditon AM. Personally, I quite like this kind of redistribution of talent – it gives the smaller providers a better chance of gaining traction with advisers and perhaps even end-investors.

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