"Right" to reply?
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I have noticed increasing numbers of fund managers defending their track records, performance statistics, income streams, holdings, and philopsophies off the back of downgrades or removals from best advice lists.
I believe this should be welcomed. Most of these downgrades are due to “poor” performance over varying levels of time.
We all know there is no perfect investment vehicle out there. There is no single investment that has beaten a quoted benchmark over every time period; we also know that people should diversify their portfolio with different managers and styles to smooth returns and balance risks.
I am a football fan and I liken portfolio construction to running a football team. Your goalkeeper doesn’t score goals, yet he plays a very important part on the football field. Surely you wouldn’t measure his “performance” in the same way you would an attacker?
So, when companies remove a fund from their lists, what hat are they wearing? Are they looking at the fund as a client’s entire portfolio, or as part of a portfolio? “Performance” isn’t just about percentage return. Diversification, correlation, risk, yield and many other factors need to be considered both in terms of putting a fund on the list, as well as removing it.
The investing public, by and large, is apathetic when it comes to reviewing their investments – they have to be – just look at the billions of pounds invested in perennial “dogs”, or funds that constantly reside on “black lists” for example. When a fund manager replies, are they right to do so? Are they bringing to the public’s attention (again) the fact they have underperformed and potentially hammering the final nail in themselves? Are they so annoyed that their funds have been downgraded that they want to reply to both the public and those that downgraded them to give the fund a bit longer to deliver? (article continues below)
How many funds are added or removed from lists just to generate a bit more interest, portfolio activity, commissions or the perception that change is always good? You don’t see Warren Buffett changing his portfolio on a regular basis. His ideal holding period is infinity.
Fund managers are obviously closer to the fund than the analyst recommending the downgrade – they will be much more emotional, and nobody likes negative press. Is the number of replies to downgrades of late because it’s an easy way of filling column inches, or are we witnessing the start of fund managers fighting back?
Richard Philbin is a multi-manager.
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Readers' comments (1)
Angus Duncan | 15 Feb 2012 3:20 pm
Richard I think you are onto something here though I do wonder at our industry.
Typically what seems to happen is something like this
An analyst comes out and says fund X is being down graded because of poor stock selection. So far so good but and this is the question, How do they know? They don't have full disclosure of holdings and trades, don't have a full on attribution system so again how do they know?
The fund manager then comes out and says fund manager a good chap, works in a great team, wrong time period looked at, better over, insert here time period of choice, and leaves it at that.
What they ought to do is state where they did well, where they did badly, where performance was not as expected given investment style and market conditions etc etc.
I mean if a fund manager does best when markets go up why bash him for under performing when they go down, that seems to me to be the fault of the fund selector.
We need to move away from this very simplistic way of looking at managers and move to a model that looks at what they do within their portfolios, what works and what does not and use that to decide if skill is being deployed.
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