It is that time of year when we all seemed to spend a lot of time predicting – or more likely – guessing what are going to be the top-performing asset classes during the year next 10 years.
I have been at conferences where as soon as a fund manager says: “I’m a stockpicker, I don’t try and call the economy,” there is a roll of the eyes or even a yawn from some of the delegates.
There are always some private investors who will want to know what is hot and will invest accordingly, but hopefully there are a growing number of investors and advisers who now understand trying to pick the next top-performing asset class is a mug’s game.
I am sure most readers have seen that chart of the 10-year performance of a range of assets ranging from hedge funds to UK equities, that looks like a really naff piece of wall paper because a different asset has been the top performer virtually every year for the last two decades.
Who is to say this year’s top performer won’t be completely different from 2009’s? Anyone for Japanese equities? No, I didn’t think so.
It is encouraging to see five asset management groups about to embark of a series of adviser roadshows under the banner ‘Alpha Generators,’ with the common denominator being the five managers speaking all see themselves as stockpickers.
Cazenove’s Paul Marriage runs UK smaller companies and freely admits he thought his sector might do 0%-10% returns in 2009, whereas it did closer to 70% from the bottom. First State felt confident about emerging markets and was proved correct, Neptune’s Japan manager Chris Taylor is quite clear about his market –“the ultimate special situation”. Martin Currie’s Tom Walker just picks stock in the US and has consistently returned 8%-10% in his funds, while Thames River’s Rob Burdett runs its distribution fund with a yield of 5% from a fascinating mix of mainstream and esoteric higher-yielding investments.
The expression ‘alpha’ has been a bit abused in the last few years, but for me the truer meaning is genuine active fund management, as opposed to closet index or yield huggers as an excuse to charge higher fees.
We are in an era where the cost of fund management is coming under focus – a combination of the ‘Vanguard effect’ and a wider dissatisfaction from under performance on the part of some ‘active’ managers.
There is nothing wrong with active managers and there’s nothing wrong with the fees they charge – the challenge for investment advisers is not what market is going up but which managers are genuinely active because they have a robust process which will deliver above average returns over a five- to ten-year period.
Is an investor upset with the charges on a Neil Woodford fund? Of course not. What is annoying is paying for mediocrity, so the job of an adviser should not be to pick the next hot investment sector it should be to avoid average fund managers. A trip to Alpha Generators will be worth a couple of hours of any adviser’s time.
Lawrence Gosling is the founding editor of Investment Week. His views are his own, any comments to him at lawrencegosling@sky.com
