Fund managers...the good, the bad, and the indifferent?

Wednesday, 16th April 2008 16:22 - by Resident IFA

How do you choose which fund manager should have the privilege of trying to make the most of your hard-earned savings? Independent fund ratings companies can be helpful in this respect, but tend to have a limitation in that they assess funds on their performance, volatility, financial stability, and other key factors over a period of time, rather than consider the undoubted importance of the fund manager in isolation. By this, I mean that you could have a star fund manager who spends 5 years managing a fund and achieves excellent performance and fundamentals, resulting in the fund having, say, Standard & Poors ‘AAA’ and/or Morningstar ‘5-star’ ratings from these independent assessment companies. The manager in question then leaves this company, head-hunted or whatever, but the fund initially retains its excellent ratings. This may not change until the next review or a marked downturn in performance occurs. Reading through your Sunday papers, you may have come across one company who approaches this slightly differently...rating the managers themselves, leading to a potentially transferable rating and assessment of their ability, wherever they may roam over time. They are called Citywire. Fund managers are ranked by Citywire against their peers and rated by the risks they take to produce their returns, compared to a relevant benchmark (i.e. FTSE100) over a 3 year period. Less than 5% of the 900 or so managers are given a Citywire ‘AAA’ rating and over 80% are not rated at all, perhaps because their period of tenure is not long enough to qualify or that they simply aren’t good enough. There a lot of factors that can be taken into account when investing money into managed funds, but Citywire can prove a good starting point. After all, would you buy a car when you knew its ‘big end’ had just blown?! This analogy can be transposed to the situation where a star fund manager is off to seek pastures new, taking their skills and performance history with them to benefit their new fund(s). Until next time...