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Johannesburg - The value of active fund management has long been disputed, but those managers who stick to a clear-cut strategy are more likely to shine than the ones who chase the latest trends.
According to leading financial analyst Franco Busetti, all fund managers are not equal and unless investors are aware of this, they may end up with disappointing investment returns.
"The investment industry is, unfortunately, often less interested in performance optimisation over the long term than in career optimisation over the short term," wrote Busetti in his book The Effective Investor.
He added that, in his opinion, it takes nine years to differentiate between investment manager skill and luck.
Being dependent on institutional investors to line their coffers, asset managers who spoke to Fin24.com were wary of criticising other firms. However, two clear-cut opinions emerged: some believed bigger is better, while others preferred boutique models.
Those backing the bigger-is-better model argued that because of higher costs brought about by legislative compliance, bigger groups are able to pass on cheaper management fees due to their scale.
The smaller players hit back by saying that these asset managers - which are often owned by listed businesses intent on delivering short-term returns - are more interested in hoarding assets than active returns.
While historical performances over a five-year period is more indicative of market trends than skill, the top performing funds for this period makes for interesting reading. Primarily dominated by resource funds, the RMB small cap fund is a noticeable standout.
The list is lead by heavyweight asset managers like Old Mutual, Coronation Fund Managers, Sanlam Investment Managers (SIM), Absa, Prudential, RMB and Investec, with only the Kagiso Equity Alpha Fund - with a paltry R9m in assets - representing a small player. The top 10 funds all returned in excess of 195% in terms of unit appreciation.
Transformation concerns
Another hot potato in the industry is the flow of funds to smaller black-owned and managed firms, with relatively short trading histories. While large institutional investors are keen to support these companies with sizeable mandates, they are wary of their lack of track record.
In a recent interview with Fin24.com, Mark Lindheim from Investment Solutions said a consequence of the equities markets meltdown has been that smaller asset managers were hit harder. Their funds under management - the lifeblood of an asset management firm - decreased dramatically, which made them more vulnerable.
Unaffiliated managers said the highly-rated team at Afena Capital is an example of an up-and-coming business with a long-term focus, which will not be fickle about its mandates.
Throughout the bump-and-grind of the stock market crisis some asset managers, for instance Foord Asset Management, Allan Gray and RECM, have clearly emphasised their investment strategies to their client base.
Richard Carter, head of product development at Allan Gray, told Fin24.com it was easy for an investment manager to deviate from a strategy when markets go against them.
"Even more important than having a clearly defined investment philosophy is the ability to stick to the strategy," said Carter, adding that it was vital for investment managers to be able to convey their strategy to managers and clients.
Paul Theron of asset management firm Vestact agreed, saying even if managers have a clear-cut strategic approach, they must be able to explain it to clients to reassure them during difficult times.
Rudolf Schmidt, SA head of multi-manager SEI Investments, told Fin24.com it was dangerous to promote young investment managers too quickly. "It is imperative that you have guys who have experienced multiple cycles and don't get caught up in the hype."
- Fin24.com
