Don’t invest in active funds unless you are equipped to monitor them – Bestinvest warns DIY investors28 May 2013
Active fund management is a people business and while there are some products managed with a genuine “team” approach or automated process, in most cases performance is ultimately down to the decisions taken by a key ‘trigger puller’ according to investment group Bestinvest. Yet as investors have been reminded in recent months with a flurry of high profile fund manager moves, these individuals will change from time to time. Bestinvest suggests that when these events happen, investors need to know about them, and also reassess the case for sticking with a fund or moving on.
“Analysing and monitoring the performance track records of individual fund managers is not a straightforward task,” explained Jason Hollands, Managing Director of Bestinvest.
Hollands points out that it is standard practice across the industry to display performance data for up to five years. “This is problematic for a number of reasons,” he said. “Firstly, because the average period of a business cycle in the UK since the second-world war is 5.6 years*. So a five year assessment period barely covers a manager’s experience across a single cycle. Secondly, on average funds change managers approximately every four years, meaning the numbers you are presented with may not represent the track record of the person managing the fund today.”
Bestinvest argues that it is important for investors to dig behind the performance record of particular funds, to analyse the career records of the managers currently running them, which means combining their career history of running similar portfolios at each firm they have worked for where the data is in the public domain.
Yet Bestinvest estimates that only 18% of UK onshore funds are managed by teams with track records operating in the same IMA sector that span 10 years or more of data, a figure that drops to just 7% when looking for teams with 15 years or more experience managing money in a sector.
Proportion of funds in each sector managed by individuals / teams with identifiable career records of more than 10-years in the sector
The sector with the largest concentration of experienced managers is the UK Smaller Companies sector, where 27% of funds are managed by individuals or teams with more than 10 years of identifiable career records in the sector. These include the likes of Giles Hargreaves (Marlborough), Daniel Nickols (Old Mutual) and Harry Nimmo (Standard Life).
Bestinvest provides investors with access to a proprietary research database free-of-charge at www.bestinvest.co.uk/managercareers to help investors to assess how individual managers have performed over their entire career in a sector. This provides investors with career performance of managers, the ratio of months that they have outperformed and underperformed, their worst losing streaks and a statistical measure as to the probability they have added value over luck, called the Bestinvest Manager Record Index (MRI). The MRI score aims to weed out those managers who may be ‘shooting stars’, who gained their status from a short period during which they were hailed as geniuses and sucked up assets.
Jason Hollands concluded: “Whether you take advice or choose to invest on a ‘DIY’ basis, it is vital to understand the track record of the individual you are investing with and then to monitor your portfolio carefully. DIY investing shouldn’t be simply about selecting the lowest cost platform, but the services, research and monitoring tools that will be provided to you to help you manage your portfolio. If you are not going to equip yourself to do this, then it doesn’t make sense to invest in actively managed funds. A fund purchase is only the start of your journey, not the conclusion of some pre-investment homework.”
For access to Bestinvest’s tools for analysing manager career records, including Manager Record Index (MRI) scores, monthly up/down ratios, career performance charts and CVs please visit www.bestinvest.co.uk/managercareers
*Source: Bergman, Bordo and Jonung
- ENDS -
Funds will have varying risks depending on the geographical area and/or industry sector in which they invest, and you should ensure you understand these risks before you invest. The value of investments can go down as well as up, and you may get back less than you originally invested. This article is not a personal recommendation, or advice to invest.
Founded in 1986, Bestinvest was a pioneer of helping clients reduce the costs of investing through discounting commissions. Today Bestinvest has grown into a leading private client adviser which helps over 50,000 investors. Bestinvest offers a range of services including guidance, investment advice, financial planning and discretionary portfolio management all of which are underpinned by a commitment to rigorous investment research. Through its low cost Select service, Bestinvest offers execution-only investors a Self-Invested Personal Pension Plan (SIPP), Individual Savings Account (ISA), Junior ISA (JISA) and Investment Account with access to more than 2,000 funds as well as investment trusts, shares and Exchange Traded Funds. Bestinvest has won numerous awards including ‘Self-Select ISA Provider of the Year 2011’ and ‘UK Wealth Manager of the Year 2011’ as voted by readers of the Investors Chronicle and Financial Times and Investment Adviser of the Year 2012 at the Professional Adviser Awards. Headquartered in Mayfair, London, Bestinvest has 14 regional offices with 200 staff servicing clients with over £4 billion of assets.
Tilney is a leading investment and financial planning firm that builds on a heritage of more than 150 years. The Tilney Group operates under the Tilney brand for Investment Management and Financial Planning and Bestinvest for execution-only investing. We look after more than £22 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.
We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.
We have won numerous awards including Best Fund Platform and Best SIPP Provider at the 2017 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.
Headquartered in Mayfair, London, Tilney Group employs over 1,000 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.