How to spot a naive fund manager
Tuesday, 14 April 2009
One thing investors need to remember is to eye ball who ever is doing the investing for them. If you use an adviser, has the adviser actually met and eyeballed the fund manager? That is in our view part of the due diligence process.
According to Sara Smith of Citywire, she says” Over the past year, the collapse of Britain’s banks has led many to question why fund manager shareholders did not challenge company management more – why did they naively accept the rosy corporate positions presented?
There were, of course, managers blowing the whistle, who showed a healthy mistrust for the glowing annual reports posted by financial institutions ahead of this crisis, but there were too many who simply accepted them at face value.
There are few challenges for wealth managers this year more important than separating the naïve from the shrewd.
Jacob Schmidt, director of Schmidt Research Partners, said one of the keys to filtering out naïve fund managers is finding those who can prove their ideas as genuinely original. Managers who tend to follow the crowd can easily be caught in market sentiment and not challenge company management.
He said: ‘When it comes to picking fund managers it is imperative that your due diligence procedure establishes whether they are serious idea-generators or just copycats. Most managers give you a fantastic presentation; they’ve got all these qualifications and so on, but not every fund manager is really original. If he’s not being original and he’s piggy-backing on other managers’ ideas, you really need to determine whether he is doing the appropriate research on the companies or simply taking everything at face value.’
Schmidt said the best way to identify a manager with original ideas is to spend time with them, if possible at their desk, talking about how they find their ideas and watching them at work.
Kevin Gundle, director of Aurum Research Limited, agreed that experience can go a long way in helping managers to see through the initial facts and figures put forward by companies. However, there is a difference between recklessness and inexperience, warning that experience can in fact lead to arrogance.
He said: ‘You need to look for someone who is clearly level-headed; managers who can express their opinions having had the benefit of experience. At the same time, you need to look out for arrogance; those who assume they know more than the market and those who don’t have the humility to accept that things can go wrong quickly.’
It is interesting that when we meet new clients, so many have neither had the opportunity of meeting their fund managers and most advisers have not interviewed or even met the fund managers that they recommnd to their clients. In this changing world we now live in, not only do investors need transparency but also confidence that what they are investing into has been thoroughly checked.
..and investors, do your due dilligence today.
posted by Murray Round Wealth Management @ 08:00,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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