There is no such thing as a “superstar genius fund manager”, according to Morningstar’s Mike Coop, who believes global teams compiled of different backgrounds are key to a fund’s consistent returns.
Coop, head of multi-asset at Morningstar, told FTAdviser the significant changes to markets and the world over the past year had “really tested investors”, who needed a framework to help resist behavioural biases which “went up a notch” during turbulent times.
For fund managers, this meant putting together a team that could check each other’s biases and take a long-term view on the effects of change on the world.
He said: “We don’t think there is a superstar genius manager. There’s a lot of clever people out there, but what stands out is those that can work well together and act to recognise and deal with those behavioural biases.
“You set up a process where others can help you and recognise what is happening. It is a mirror that you look into which goes ‘don’t kid yourself, you cannot avoid these biases’.”
Coop added that although there would “always be someone doing well at any one time”, a team approach helped asset managers be a dependable and consistent source of return.
The Neil Woodford saga has somewhat hurt the role of the ‘big name’ in fund management, after his investment business came to a rapid close in 2019.
His flagship fund had been suspended in June 2019 following a period of sustained outflows and underperformance, and after its administrators decided to wind down the portfolio, Woodford walked away from his other two investment vehicles and closed his company.
Woodford’s protege and once a star fund manager himself, Mark Barnett, left Invesco last year after a prolonged stint of underperformance and mass outflows.
Star fund managers in the industry, such as Nick Train and Terry Smith, still experience big inflows into their giant funds, however.
Time to pull back?
Coop said the key debate surrounding investing at the moment was whether it was time for investors to “pull back on risk”.
He said: “Most of the time, you get paid a normal amount for taking risk — risky assets get higher yield, that is a fairly consistent approach.
“But sometimes the world shifts in a way that you have to look to see if you should shift your risk taking.”
Coop takes a four pillar approach to assessing this: are markets expensive? Could assets fall very heavily in value? Are investors being too bullish or bearish? How easy/hard is it for companies to raise capital?
He said: “For example, at the end of 2019, markets were expensive, it was too easy to raise capital and it wasn’t a good time to take risk.
“Then the pandemic happened, and the opportunity to take more risk arose as valuations improved.”
Markets have since rallied in both equities and bonds, and in the “riskier parts” of those markets according to Coop, so investors needed to question if they should pull back on risk.
Coop added: “Governments have spent a lot of ammunition already, debt levels are high at corporate and government level, the fact that markets have moved up and into expensive territory. Risks are rising for investors.”
imogen.tew@ft.com
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