Gary Potter, who jointly runs the £1.9bn F&C Navigator Multi-Manager fund range at BMO, has revealed the two funds he believes are undiscovered gems.
Mr Potter said he does not regard himself or his team as multi-asset fund managers because, in his view, they seek to add value for investors through making calls on the direction of the market or the economy.
Mr Potter said this is not something he tries to do.
He said: “We build the funds we run from the bottom-up. We think there are better returns to be had over the long-term from buying the best funds, rather than asset allocation.
"We have a very low ego and don’t think we much know more about the direction of markets or the economy than anyone else.”
He said when selecting a fund, many wealth managers want to see a three or five year track record before they will invest, but he is happy to ignore the lack of such a record in a manager he believes meets other criteria.
Mr Potter said the three things he looks for in a fund manager are “alignment of interests, benchmark unconstrained and capacity constrained”.
Alignment of interest means he wants the incentives for the fund manager to be set at a level that rewards genuine outperformance. He wants fund managers to be properly active and not buying shares simply because they are a large part of the index.
He said the best fund managers realise their strategy will become less effective as their fund grows in size, so he prefers fund managers to have a clear idea of how large their fund can grow, and to close the fund at the right time.
Mr Potter said his willingness to invest in funds that have yet to attain a three or five year track record means he often uncovers hidden gems and future stars.
One such fund he has been buying is Jupiter UK Smaller Companies. This is a £153m fund that has been managed by James Zimmerman since 2015.
Mr Potter said the manager’s lack of a three year track record means the big wealth managers won’t buy it, so the fund has stayed under the radar.
The fund was the absolute best performer in the IA UK Smaller Companies sector in 2016, which was Mr Zimmerman’s first full calendar year at the helm, returning 22 per cent, compared with 7 per cent for the sector average.
The second fund he nominated is Prusik Asian Equity Income.
He said the fund remained virtually unknown in the UK, as is not widely available on platforms.
The track record is excellent, he said, and the fund manager refuses to let the assets go higher than $750m (£567m), which makes it much smaller than many of its competitors.
Data from FE Trustnet shows the fund has returned 98 per cent over the past five years to date, compared with 70 per cent for the average fund in the FO Asia Ex Japan sector in the same time period.
Darius McDermott, managing director at Chelsea Financial Services, said Mr Zimmerman is something of a “rising star” in fund management.
