The trade media have for years focused on the big name managers that run some of the largest asset pools in the industry. If, say, Anthony Bolton or Neil Woodford so much as raise an eyebrow following a macro news announcement, the familiar headlines will land on your desk or in your inbox before it’s even had chance to return from whence it came.
In principle, I get it. Mr Woodford, for example, has been running money for 25 years and has an enviable track record, delivering returns in excess of 200 per cent over 10 years for his Invesco Perpetual income funds and amassing some £24bn in assets under management.
What I’ve never been convinced of is that advisers care that much what one of these fund managers has to say on any issue at any given time. I understand the imperative to fill column inches and that many people are invested in the funds run by these behemoths, but are they really interested in reading their ongoing trail of thought on life, the universe and everything?
This question comes into particular focus in the post-Retail Distribution Review world, where rigorous due diligence to ensure the highest degree of client suitability has become the overriding investment concern.
Obviously the long-term returns from these managers is compelling, but (and say it with me) past performance is not a guide to future returns.
For example, those who piled into Anthony Bolton’s China Trust in early 2010 on the back of his formidable reputation and stellar historic returns would have been disappointed. At the time of confirming the date of his retirement in June Mr Bolton’s three-year old fund had lost 13.8 per cent on a share price total return basis. The MSCI China index by comparison lost 6.4 per cent.
I got to thinking about this earlier this week when I hosted a Financial Times event on multi-manager fund assessment and selection.
Mark Ommanney, former president of the personal finance society and now business development manager at Bestinvest, gave an engaging keynote address during which he suggested that when deciding on funds to place in a centralised investment proposition the manager is the primary concern.
Performance figures, he said, are arbitrary and next to useless unless one understands the ‘why’, all of which is down to the manager. What is their style, what specific factors affected their returns for good or for ill? He used the example of Mr Woodford underperforming in 1999/2000 due to eschewing the dotcom hubris - and subsequently cashing in the years following the bubble bursting.
Those who piled into Anthony Bolton’s China Trust in early 2010 on the back of his formidable reputation would have been disappointedHe made a good case and certainly convinced me that given a narrow choice between focusing on performance or manager, the latter is king. Obviously, however, client suitability and investment selection is about so much more than this.
Indeed, in the lead up to and aftermath of the RDR advisers and others have been talking up the importance of asset allocation above all else. Get the right mix of asset classes and exposure in appropriate proportions to various geographies and economies and a client’s unique needs will be met.
Taking that at face value the importance of the manager is much more limited; why not then build passive portfolios and reduce costs, many have asked.
To quote Mr Ommanney himself, “if I had 1,000 monkeys picking stocks, 34 of them would beat the market”. Well who needs highly paid active managers if that is true?
I put that question to him during the Q&A panel at the end of the event and he amusingly replied: “I’ve never found a monkey that I could hire to do the job”. Well played, sir.
Obviously I’m being deliberately reductive. Of course it is horses for courses and I’m not by any means suggesting one model or approach over another is best in all circumstances. What I do believe is that there is an increasing polarisation in views on the active vs passives debate.
Advocates of active counter the above passives peroration by saying long-term returns prove the value of active managers and justify their cost. They add, to quote JP Morgan’s Fusion funds manager Tony Lanning who also spoke at this week’s event, that “investing in passive funds is the one way to guarantee underperforming the index” once fees are taken into account.
No one answer can ever be right. What I think is irrefutable is that whether you support active or passive, client considerations now trump tracking particular managers. I therefore believe advisers will be putting much less focus on every word uttered by Mr Woodford and his peers.
I’d be interested to hear your views.
