POWERED BY MOMENTUM MEDIA
(March-2002) Pick a winner
Even if you can count the cards at the blackjack table, the odds of beating the house are still around 50 per cent or less. In fact, the odds are about the same as those you have of picking the right international fund manager, says Frank Russell’s Tacoma, USA-based managing director of investment policy and research Andrew Turner.
At least in the casino, however, you can see the cards you are dealt. In manager selection, you can’t. You can only measure the success of your decisions by the outcomes, he says.
Picking a global or offshore fund manager is no easy feat considering, for example, that there are more managers in the US than listed companies.
So what is Turner’s advice?
His best tip would be to use an international asset consultant, because you have no hope of exhaustively evaluating the thousands of managers out there yourself.
One of the biggest mistakes made is to chase past performance. “Sometimes we do this because we think that the recent past is an indicator of success, but it’s not. Good managers can also go through long periods of underperformance. It just means that they are very unlucky, not stupid,” says Turner.
“A myth that we come across all the time is that managers that have just done poorly are more likely to do better in the future. It’s also wrong to stick with managers that have been hot. This doesn’t mean that they will stay hot.”
Turner says another mistake is to take on too much risk — for example to think that bad things won’t happen. They might!
Investors can also get emotionally attached to managers, as they do to shares, and they need to have a sell discipline — a policy set out in advance stating when and why they should sell out of a manager.
Turner also believes that going for size — whether it’s a financial services giant or a small boutique — and for well-known brands, especially from multi-product firms, do not guarantee success.
When you hire a manager, you hire the team managing that product, which may not be the team that helped build the manager’s reputation, he says.
He is also not keen on online international manager selection. “About the same proportion of people who work on their late model cars themselves should do online searches themselves. Things are just too complex,” he says.
On whether there’s any value in visiting the manager, he says: “It depends on how confident you are in your asset consultant. If you need to replace a spare part in your car, do you visit the manufacturer of that spare part? There is a low likelihood that you can learn more than an expert.”
He believes that many factors — such as whether someone looks like your ‘ex’ — can influence your decision.
There’s also no ideal amount of managers that a super fund should have in its portfolio, although predictably, Turner believes you are better off going for a multi-manager fund.
He notes that when more managers are added, there’s a trade off between the benefits of diversification and the likelihood that these managers will all hold the same stocks in their portfolios. To avoid the latter, he says it is better to go for a blend of managers that rely on different information processes in their stock selection.
In fact, for overall success, it’s most crucial that you understand what each manager does, why it does it, what it is that it does that works and what its information advantage is.
Recommended for you
The super fund has significantly grown its membership following the inclusion of Zurich’s OneCare Super policyholders.
Super balances have continued to rise in August, with research showing Australian funds have maintained strong momentum, delivering steady gains for members.
Australian Retirement Trust and State Street Investment Management have entered a partnership to deliver global investment insights and practice strategies to Australian advisers.
CPA Australia is pressing the federal government to impose stricter rules on the naming and marketing of managed investment and superannuation products that claim to be “sustainable”, “ethical”, or “responsible”, warning that vague or untested claims are leaving investors exposed.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
DomaCom DFS Mortgage
76.97 3 y p.a(%)
2
Global X 21Shares Bitcoin ETF
76.46 3 y p.a(%)
3
UBS Solactive Global Pure Gold Miners UCITS ETF Dis USD
51.13 3 y p.a(%)
4
Global X GlobalX FANG+ ETF
45.15 3 y p.a(%)
5
Select Baker steel Gold Institutional
43.78 3 y p.a(%)
