How do you judge and select a fund manager?
The value of a good financial adviser becomes apparent when an investor needs to determine which fund manager would be best to entrust one’s money to. Because fund managers may catch an investor’s eye by dressing and speaking well, and making a compelling
Kokkie Kooyman, head of SIM Global, has this advice: “Do enough homework to know what you want, then select a fund manager who has a long track record of following a process that delivers that consistently,” he says. This is where a financial adviser should step in.
Kooyman suggests three possible considerations an adviser will take into account, after analysing an investor’s risk profile and assessing what his or her investment goals are.
Don’t look at short-term results only
Kooyman cautions that looking at three- to five-year performance can be dangerous because figures can be misleading. Sometimes a fund manager’s short-term results are not compelling, but in the long term that fund manager is performing well. Think twice before you select or reject a fund simply on the five-year number. The investor is presumably in it for the long haul.
Compare apples with apples
The six-year period ending December 2012 captures what Kooyman calls the ‘mandate effect’. Funds with an ‘equity only mandate’ (and especially a fully invested, bottom-up, stock-picking mandate) were hard hit in 2008 as markets crashed.
Hence a balanced fund with a high percentage of cash will have outperformed in 2008 but will have done poorly in 2009 (when markets rebounded). So in that regard one must ensure one is comparing apples with apples. “Be careful not to compare a balanced fund with an equity-only fund in a period that includes a bear market,” he says.
Take a look at the team
Fund managers cannot manage a fund on their own – this is certainly true of a global fund. Kooyman says that the larger a team or fund management business, the more important people management becomes. In that regard, managing a fund management unit is like managing a football team. To outperform and keep winning you need to have an above-average team.
“The balance of both consistency and experience is vital. It is no coincidence that both Buffett and Ferguson are in their 70s (in fact Warren is 83),” Kooyman says.
Editor’s thoughts:
It’s anticipated that TCF will ensure that financial advisers steer clients towards appropriate products, but what do they look for when selecting a fund manager? What are your criteria? Comment below or email fiona@fanews.co.za.
