Forsyth Partners had made its name by building portfolio recommendations for the adviser market based...
Forsyth's research product, Fund Analysis & Ratings, contains not the whole universe of funds, but those it feels any client would need for global exposure across all sectors. To deliver this, the group has evolved a qualitative selection process
Some of the statistical databases that analyse individual mutual funds and sectors are of the highest quality and are regarded as extremely useful. However, the most important factor in the fund selection process lies in the skillful interpretation and analysis of raw data. Essentially, this involves a qualitative appraisal.
Forsyth analyses historical fund performance by particularly looking at results over discrete time periods. It places greater emphasis on short to medium-term trends in performance than in long-term trends. Examination of performance over long time horizons can severely distort and disguise more recent movements. As the focus is to define the winners of tomorrow, the group believes that placing the emphasis on the short to medium-term provides a more valid guide.
Forsyth examines a broad universe, seeking to identify the right funds to recommend on a global basis, in different geographical regions, in different countries and across different asset classes. To this end, considerable time and effort has been devoted to developing a proprietary research base - including the construction of defined universes of funds - involving clear definitions of which funds should be included within a particular sector or geographical grouping for the purposes of performance comparison.
Forsyth carries out in-depth interviews with the relevant fund managers and brings a number of other features into the equation. These would include the size and liquidity of the fund, but most importantly, the strength of the investment management team and the individual manager.
Recommended funds are monitored against the peer group and, as part of an ongoing review, managers will be re-interviewed regularly. The company carries out around around 3,000 fund manager interviews every year.
Having thoroughly researched the statistical background to individual funds and scanned its own universes of alternatives, the group spends considerable time developing its understanding of how the different investment management houses operate with the aim of gaining a real insight into their investment style and to identify areas of expertise and, possibly, weakness.
There are a number of questions asked in conducting the research, although the group deliberately avoids the production and completion of questionnaires for fund management groups, recognising that there are great differences in style. It does not wish to constrain or 'straitjacket' fund managers with our own definitions and questions.
Key areas of focus
There are certain key areas upon which Forsyth Partners will focus. These would include an analysis of the strength of the investment team, the quality of its individuals and their experience, the level of research undertaken by the company itself or the reliance that it places on third party information and whether moneys are managed locally or at head office.
The reliance on individual fund managers, as opposed to a team approach, is also considered, with a view to assessing how vulnerable an organisation is to the departure of a specific fund manager. Forsyth attempts to identify particular strengths that enables it to assess whether an organisation is likely to be better than its competitors at managing specific types of funds.
For example, strong asset allocation disciplines are more important in a house that is heavily involved in the management of global or regional funds. Different skills are needed in the management of country funds, where stockpicking is crucial.
Forsyth's analysis of investment groups, fund managers and individual funds points to the fact that, at times, widely different approaches are taken in managing money in similar areas. Once Forsyth has defined the strengths of a particular management group it begins to focus more on specifics, aiming to get a clear picture of how a fund is to be managed and how a company's overall methodology translates into practical day-to-day management.
The most important issue here is to obtain a clear definition of a fund's objective. Another factor lies in the approach to the currency overlay, particularly for funds investing in bonds. Forsyth examines attitudes towards managing an investment portfolio actively or passively. It looks at the growth and value stories and considers the degree of aggression and attitudes towards trading.
The group will look at the tendency to buy large, medium or small capitalisation stocks and, where appropriate, the blend of these in the portfolio. The degree of diversification or concentration in the portfolio is another important factor, as is the manager's commitment to specific sectors or themes. Above all, Forsyth wants to know that the manager can deliver outperformance while at the same time fully understanding the levels of risk.
This special report on Red Hot Fund Managers, produced for International Investment, highlights firstly groups to watch in 2000 and beyond, followed by individual funds to watch. Forsyth is first and foremost rating funds and individual fund managers in its core business. Of course, it is happy to endorse many of the fund management groups that can demonstrate a breadth of experience across sectors and regions. However, the group ultimately holds with the belief that no one group shows excellence across the board. Nonetheless, Forsyth feels that this is a useful exercise in highlighting some of the groups intermediaries may not know much about, tog
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