By Robert Burdett, joint head of multi-manager services at Credit Suisse Headlines proclaiming b...
By Robert Burdett, joint head of multi-manager services at Credit Suisse
Headlines proclaiming billions wiped off share prices have become all too familiar in one of the longest, most persistent bear markets ever seen. In fact, it is not just share prices but bond prices that have seen falls as Enron, WorldCom and others have dented some bond funds.
How has the fund management world fared in this hostile environment? Taking the 12 months to the end of September, there were funds in all of the main 11 regional sectors in equities and bonds that have made money ' anything up to +29% from the top UK All Companies sector, and even +68% could have been achieved with the foresight to pick the bottom of the multi-year gold bear market.
At the other end of the scale returns have fallen as low as -45% in the core 11 sectors, again in UK All Companies ' a span from best to worst of 74%. These figures are a little more stretched than usual but by no means exceptional in our experience of the past ten years ' significant potential reward for careful fund selection remains.
What about consistency? Do the same managers occupy the top spots year in year out? No ' currently 97% of funds in the same top 11 sectors are below top quartile in at least one of the past three years. Around 87% have even failed to be above average three years in a row.
So the talent is there in the minority or it is masked from statistical analysis as it moves about from company to company. Last year, 31% of all funds had one year or less of continuous track record under the same manager. Over three years, the figure increases to 68% ' one of the key reasons for the lack of consistency.
It is hard to imagine such statistics increasing further but so far this year voluntary resignations of high-profile managers have continued unabated, and we have also begun to see the rising spectre of the involuntary move as the bear market bites harder.
Several fund management groups have recently started to downsize fund management operations for the first time in many years.
In addition to this, the long-talked of consolidation of the fund management industry has finally begun to take hold ' there are 20 fewer companies offering funds now than at this time last year and, at 140 businesses, the lowest number of companies offering funds since 1987.
So what can we conclude from the state of the industry as exposed by these figures? Will consolidation lead to a more concentrated and potent set of returns for investors? Possibly.
More definite good news is that active management works, albeit in the minority of cases at the depths of a bear market.
The bad news is that the talent moves around and is hard to capture or trace sometimes. The case remains strong for diversification of fund portfolios to capture some of the more exciting managers, and for intensive research to unearth some of the more original thinkers capable of bucking the market trend.
Recently I saw the first billions wiped on share prices headline I can remember. Is this the turning point we need to see more absolute returns so rare at present? Who can tell, but what we can say is that the past three years have been a severe test for fund managers and for investor patience alike.
Evidence tells us that active fund management can achieve returns in such inclement conditions as we have seen, but evidence of investors' patience being maintained will only become apparent over coming months and years.
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