POWERED BY MOMENTUM MEDIA
Assessing fund manager failures vital
Poorly performing investments can be as revealing as successes for assessing fund manager skill, according to Towers Watson Australia head of investment research Hugh Dougherty.
Assessing investment skill required a comprehensive understanding of the fund manager's investment philosophy, process, and execution of process, Dougherty said.
"It is important to recognise that mistakes are an inevitable consequence of taking risk where uncertainty exists, and the identification of these mistakes in a portfolio, in the context of broader understanding of an investment manager, can be very helpful in determining the presence of genuine skill," Dougherty said.
He said it was possible for a genuinely skilled manager to generate poor returns for an extended period of time due to their patience, a key characteristic of great investors according to Dougherty.
He said skilled managers understood that building long-term wealth required resisting the temptation to follow the excitement that builds around out-performing investments.
"Effective investors are equipped with the strength of personality to resist hyperbole and often invest in less popular areas.
"They do not conform to popular market strategy, and build teams of colleagues who will challenge their ideas and investment philosophies," he said.
He said detailed examination of investments within a portfolio and inconsistencies with processes and investments that contradict processes are all indicators of fund manager skill.
"Getting inside the minds and hearts of managers requires an understanding of the investment drivers and key issues for reaching investment decisions on selected investments," Dougherty said.
He said finding investment skill represented a material cost to most firms, but the benefits of choosing a skilled fund manager were worth the effort.
AUTHOR
Staff Writer
Money Management staff writers are writers who contribute to the website from time to time. If you would like to discuss the content contained within this article please contact us.
Recommended for you
Infrastructure well-positioned to hedge against global uncertainty, says investment chief.
The fund manager remains positive on the outlook for gold and believes ongoing market volatility will provide opportunities to acquire small-cap stocks in promising sectors.
T. Rowe Price Group VP said investment strategies must adapt to an ageing population, as Australians outlive their retirement savings.
The international asset manager expects AI will reach a point in the near future where it can autonomously manage investments within certain parameters set by fund managers.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
DomaCom DFS Mortgage
88.01 3 y p.a(%)
2
Global X 21Shares Bitcoin ETF
72.60 3 y p.a(%)
3
Global X GlobalX FANG+ ETF
44.46 3 y p.a(%)
4
Pengana High Conviction Equities B
39.12 3 y p.a(%)
5
Pengana High Conviction Equities A
39.05 3 y p.a(%)
