When you invest in a Fund, you are trusting your money with a Fund Manager. Therefore, identifying the best Fund Manager or their credentials is very worthwhile. In many ways, analysing a Fund Manager is similar to hiring someone for a new job. You want to know their track-record and likely success.
So you have picked a Fund to invest in, the holdings look in line with your aims, the performance seems good. But you don’t know much about the person running the Fund! So it’s time to do some detective work to give you total confidence before you buy units.
Look for experience
We’re told that age is just a number – and yes it is. If you’re good enough, you’re old enough is a common saying. However when it comes to funds – there is a case for experience.
If a Fund Manager has run the same fund for a good number of years, it is likely they will have good experience and have navigated difficult times (not guaranteed). Similarly, their investment style should be finely-tuned and they will have a good team around them. This could give you additional confidence.
Look for Longevity
Just like you’d be suspicious if someone is constantly switching jobs – you should also be suspicious if a Fund Manager has a history of short-lived spells at the helm.
Evaluate their true performance in different cycles
Let’s assume a fund has what you believe to have good performance over a period of 5 years. But you should go a step-further to understand why. Is the Fund Manager producing good returns in falling markets as well as rising markets? Has the Fund Manager produced as well as his peers in different cycles?
If the Fund Manager has performed well during market dips, then it is likely they are a seasoned stock-picker and know their stuff.
Check their Rating
Some websites will rate Fund Managers or product a mini-fact-sheet on the Fund Manager themselves. You can see how they perform in relation to their peer group in terms of a total return. Trustnet will allow you to identify the Top 10 Fund Managers by Sector – whether it be UK Smaller Companies, UK Equity Income or Absolute Return Funds.
Other sources will rate Fund Managers like Bonds – giving an AAA rating for those that are perceived to be within the top-percentile.
Watch out for complacency
Some say Complacency breeds failure. A Fund Manager who is on top with large and growing amounts of Assets under Management could let the success get to their head. Some would say that the rise and sudden demise of a once-renowned Fund Manager creating his own Fund Management company is an example of this. Likewise, some would point it highlights that there is extra risk in investing in Funds that are named after the Fund Manager themselves.
How will they cope if the Fund Manager under-performs or has to move on for whatever reason? In this situation: the funds either get wound-up or transferred to be run by an Asset Management Firm with a substantial track record such as Schroders or Aberdeen Standard. But investors are left out of pocket due to the poor performance.
It’s just like interviewing someone for a new job!
In picking Funds some would say that it’s best to actually start with the Fund Manager. Why? Because like in work environments, if we’ve worked with someone before or they have an excellent reputation – they are more likely to be trusted to perform well.
Likewise, should a star Fund Manager be leaving from a Fund that they’ve run for many years, it could be a sign to sell for investors.
Analysing a Fund Manager is very much like hiring someone for a new job. How experienced are they? What achievements have they produced in challenging situations? Have they been recommended? Do they show any irrational behaviours? All valid questions and answers you should be able to get.