Fund Management. Bigger the Better?

When it comes to selecting top-performing investment funds and unit trusts the bigger brand is not necessarily better. Choosing the wrong fund by investing with big brand fund managers could cost investors dearly.

Many investors are deluded into thinking that buying from a big brand fund manager will in some way protect them against selecting a poorly performing fund. The big brand managers offer many great funds, but they’re also marketing plenty of duds. Just because one fund is a top performer, doesn’t mean it applies across that fund manager’s range. Investors need to look beyond the brand and more closely at the underlying fund.

Over recent years, the UK market has seen a rise in popularity for boutique investment houses, and, given their track record of consistent positive performance, it’s hardly surprising. There are many ways to classify a boutique, but generally speaking, boutique fund managers are independently-owned or employee-owned, and relatively small in size. They often invest in specialist areas of expertise, rather than attempt to be all things to all men and run funds across each and every sector.

Recently, boutiques have even been stepping on large firms’ toes when it comes to servicing retail clients. Last year boutiques outshone their larger counterparts in the UK, taking the top four places in the ‘best overall fund manager rankings’. Big brands such as UBS and Standard Life slipped down the rankings, while boutiques Rathbone, Neptune, Dalton and Artemis took the top spots.

The last quarter of 2006 was hair-raising for investors, as millions were wiped off share prices and markets. However, the boutique fund management houses continued to outperform their larger rivals.

The disappointing reality for most private investors is that neither they, nor in some cases their financial advisers, would have heard of some of these relatively unknown smaller investment houses, and are therefore missing out on great investment opportunities.

The same caution applied to big brands should also be applied to big names – or the so called ‘star fund managers’. Is it wise to stake your money on the reputation of an individual big-name fund manager when there’s no guarantee they will stick around?

Research shows that just 15% of managers have run the same fund for over six years, 43% for four to six years, and 39% for two to four years. Similarly, 80% of fund managers at the top 50 UK fund providers have left their funds in the last three years. Around 60% of managers move because of offers from competitors.

In investment terms, familiarity doesn’t always necessarily breed content. Investors should monitor their investments very closely and ensure that they have the tools to hand to spot strong investment opportunities that would otherwise pass them by.

This entry was posted in Archive, Economy Articles, Finance Articles, Jim Collins. Bookmark the permalink.

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