While the markets continue to hurt all investors, they have shown themselves to be a proving ground ...
While the markets continue to hurt all investors, they have shown themselves to be a proving ground for fund managers. In circumstances like these there are two ways a manager can react ' by retreating to as low a beta position as possible and hiding behind the index; or by striking out, taking active positions against the market and, in general, trying to swim upstream.
Advisers must decide which of these strategies to plump for, but both have risks. It is arguable that a growth manager with a large portfolio who reduces volatility relative to the benchmark is no longer doing his job of actively managing his fund and no longer deserves correspondingly high fees. Especially as some of the worst-hit stocks have been some of the largest index components. Vodafone is 40% of its peak value. Nokia is 30%. Managers have to be prepared to be short of some of the big index stocks and so the real skill in this market has been to know what stocks to sell.
The two types of manager who have done well are those value managers that have stuck to their scripts throughout the bull market: their patient determination to demand good fundamentals has finally paid off; and those who read the changes in the market conditions and understood which sectors were in and out and which major stocks were vulnerable.
The slew of 'focused', 'concentrated' and 'best ideas' funds that have flooded the market have implied that managers have the willingness and ability to take that kind of risk.
A concentrated portfolio that had ignored sector exposure and leapt onto the technology bandwagon could have made an obscene amount of money at the right time, but without making the correct decision on market timing, would have lost it all again.
However, by choosing those managers who have proved themselves able to succeed in this market ' the Albert Morillos and Tim Russells of the world ' advisers can prove to their clients that they are earning their keep.
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress