Knowing where to invest for the best returns is a problem as old as investment itself. A similar conundrum is this: how significant is the role of the ‘star’ fund manager? When such a star leaves the fund, the natural reaction may be to press the panic button and withdraw one’s investments – but recent research by AXA Wealth indicates that this is not necessarily the best policy.
We considered the departure of 10 such stars from their funds, looking at the 12-month period leading up to that moment, and then comparing this to the annualised performance of their successor. This was not to argue that, for instance, Mark Barnett is a better or worse manager than Neil Woodford, or that a fund manager's performance should be judged on a single year. This would clearly be wrong – as wrong as it would be to take a knee-jerk reaction based solely on a manager’s name or reputation
Our data makes this clear. It indicates, rather, that investors might be better placed sitting tight and reviewing performance after a time. Indeed, seven out of 10 funds actually performed better under the new manager when judged against their peer group. Whereas investors who switch funds automatically are incurring costs based on an unprovable and unquantifiable benefit.
Investors should remember that, in most cases, funds are not the brainchild of a single fund manager, but in practice are run by a team. This means that, after the fund manager has departed, the investment team, the analysts and indeed the fund infrastructure, systems and processes will (in most cases) remain in place. If an investor withdraws their money upon hearing that the fund manager has gone, they are effectively saying that none of this has made any difference, and that the fund’s performance was overwhelmingly due to the brilliance of one individual. It’s a lot of money to stake on an unfounded belief.
The key is to understand and consider the pros and cons of any fund switch before taking any action. This is why thorough research is so important in the investment world. AXA Wealth recently launched a new range of investment options called Intelligent Investment Choices. These offer advisers a choice of fund ranges to serve the differing investment needs of their clients.
We know how important it is for advisers to get things right for their clients, hence the need for an investment process they can trust. That's why we have placed integrity at the core of our approach, delivering a range of investments built on comprehensive research, analysis and due diligence.
It can be unexpectedly complex and time-consuming to construct even the simplest portfolio for your clients. Intelligent Investment Choices makes things easier, giving advisers more time to focus on the little things that matter so much to clients and their families. Also included is the Tailored Selection fund range, a manageable list of around 70 researched funds to help advisers with their portfolio construction. These funds were researched and recommended by the research team at Architas, the specialist investment company within the AXA Wealth Group.
As part of the selection process for the researched fund range, we wanted to find a concentrated number of funds that could provide complementary new investment ideas – something a bit different for advisers to consider as part of their client’s portfolio. From 600 ideas initially suggested by fund groups, we selected just six initial Showcase Funds. These were chosen through a process of quantitative screening, qualitative analysis and face-to-face meetings with more than twenty managers to fully understand the investment opportunities.
Researching and picking funds from the thousands available in the market can be time-heavy. But advisers can create more time to spend with their clients by outsourcing their fund research if need be. They can then create portfolios that match their client’s attitude to risk, by blending the expertise of different fund strategies available within the researched fund range.